"The recent big surge in housing loans and the growth of rollover balances raise the question of whether Singaporeans already facing one of the highest debt to income ratio in the world, have placed themselves in a precarious situation", Kuo How Nam, President CCS, ST Forum 5 Jan 2011.
Singaporeans did not place themselves in a precarious situation -the people in govt who failed to keep housing prices affordable and contain unsecured consumer lending did. I agree with Mr. Kuo that Singaporeans are in a precarious situation and many don't realise because the economy looks alright for now.
In the past 3 months, the total consumer debt in Singapore reached $150B. This figure consists of $111B housing debt and $40B in the form of credit card, car and unsecured loans. Mr. Kuo noted that the roll-over credit card debt has grown to a record $4B and the number of credit cards issued in Singapore has reached 6 million a figure that translates to roughly 6 credit cards for every eligible person with annual income above $30K. In the rest of the posting, I'll focus on issues surrounding credit card loans and unsecured debt among Singaporeans.
Lets start with a somewhat unusual question. Why do Singapore banks like hire American CEOs or bankers with experience in US who were part of the banking system that nearly failed? They hired them before, during and after the financial crisis...so it is not for lessons learnt on how to prevent a banking crisis. There are a few simple and sensible ways to stem the growth of unsecured credit/credit card loans but the Singapore govt will not do it even though it will be good for Singapore society as a whole. I'll tell you why in the later part of the article.
A few years ago, I went the the CCS to attend a talk. This talk [Link]is given weekly and compulsory for those who want to seek councelling from the CCS. I wanted to attend the talk to understand how CCS can help those in trouble and what the CCS does. Very often when we see articles of about people who run into debt problems there is a small box next to the article asking people to seek help from the CCS. ...the same way people are asked to go to NCPG (National Council of Problem Gambling) when the newspapers publish articles on problem gambling. Problems caused by consumer lending by banks are passed on to this small unit called the CCS which is registered as a charity and run by volunteers. With consumer debt of $150B and a rollover debt of $4B, you would think that something bigger than the CCS would be needed to handle the problems that surface. Given its limited resources, CCS does a decent job but there is only so much it can do for people who need help. During the CCS talk I attended, the presenter showed a simple flow chart - if you can pay the minimum sum for your loan, you go back and help yourself. Otherwise, they will talk to you to see if they can repackaged your debt repayment into a mazimum 5(?) year instalment at an effective interest of 13-15% by writing to the banks. They will advise to cut down your spending to keep your repayment period as short as possible i.e. do without your car, limit the number of times you dine out etc. If you're a hopeless case i.e. your debt cannot be repaid in a period acceptable by the banks, they will advise you to try to get help from relatives or friends, sell your property or file for bankruptcy. Throughout the talk, the present repeated this statement and in bold one of her slides: "What you owe is only money, do not pay with your life.....". Apparently, when people get to the point when they need help with their debt, they can be suicidal. Given its limited resources and setup, all the CCS could do is to give advice and write to banks - the banks used to have the right to reject the repayment plan and proceed with bankruptcy filings...in May 2009, the CCS was helped by a new legislation called the DRS (Debt Repayment Scheme) which compels the bank to accept repayment plan which the debt is less than $100K and the debtor has sufficient income to service the debt within a reason period.
The CCS' capacity to conduct talks to educate the public is limited compared with the 'mis-education' by banks that spend tens of millions on advertising telling consumers to borrow to spend on holidays, gadgets, weddings, etc. I changed my handphone number a few years ago because I sometimes received 3-4 calls a day from banks trying to entice me with low interest loans that later would balloon into toxic high interest loans. The problem is after I changed my phone number the banks somehow managed to get it and I'm starting to get these pesky calls from their telemarketers. The only reason why banks would offer low interet unsecured loan to customers is the knowledge that some customers would run into trouble and not be able to pay in full when the offer period ends and have to service the loan at very high interest rates. In other words, the banks are preying on their customers - this form of lending is known as predatory lending. Where did local banks learn all these 'tricks of consumer lending'? ...That is the anwer to the question why local banks like to hire American bankers to expand their consumer lending business and the whole idea is to turn ordinary Singaporeans into a cash cow - lending to them at high interest rates and turning them into credit card slaves...perpetually paying for their loans.
There are 2 simple solutions to the problem. When other govts discovered the problem caused by credit card lending and predatory lending by banks, they fixed it by capping the interest rates to about 13% - at that level banks would become more responsible in their lending by the banks. Examples are Malaysian and Taiwanese govts[Link]. This idea of limits was part of Obama's consumer protection bill but was shot down after the banks lobbied intensely against it[Link] because these high interest loans are very profitable. The other solution is to limit how much unsecured loans banks can make to an individual - today banks are allowed to lend 3 times an individual income. However, the MAS left a loophole - individuals overcome this limit by borrowing from multiple banks. What is required to fix this problem is for the MAS to fix this by limiting the number of unsecured loans an individual can apply for to 1 or 2 banks. These are simple solutions to fix a growing problem that harms our society. However, I doubt the PAP govt will do anything given that these activities are highly profitable for the banks and the PAP has been pro-business in its policies...also the PAP govt has interests in these banks and that always take priority over the interests of the people.