Singapore - Responsible Lending Requirements & Rate Caps

Changes to Singapore's responsible lending requirements have been welcomed by banks including Citibank, which continue to operate in a legislative environment that includes a duty to make full and proper assessment of borrowers' circumstances and interest rate caps on small sum credit. Article from Channel News Asia, dated 1st February 2007 follows.

By Loh Kim Chin, Channel NewsAsia

SINGAPORE: You will now qualify to apply for unsecured credit facilities with banks – if you earn at least S$20,000 a year.

The Monetary Authority of Singapore (MAS) and the Law Ministry (MinLaw) have decided to relax the rules on such facilities.

Previously, applicants had to earn at least S$30,000 per annum.

Unsecured credit refers to things like overdraft facilities where people pay interest from the time they draw down on the sum.

The latest rules do not apply to credit cards, which still require a minimum income of S$30,000 a year.

There will also be a more conservative maximum credit limit.

Those earning between S$20,000 and S$30,000 a year can only borrow up to twice their monthly income.

But if they earn at least S$30,000 a year, they can borrow up to four times their monthly pay.

There will also be changes to the moneylenders’ regime.

For instance, for unsecured loans of S$3,000 and below, there will be no minimum income requirement but such loans will be subjected to an interest rate cap.

To mitigate the risks of over-borrowing by individuals from all income groups, MAS and MinLaw will require financial institutions and moneylenders to conduct adequate and relevant checks on borrowers before lending.

MAS and MinLaw will make the relevant legislative changes to the Unsecured Credit Regulations and the Moneylenders Rules by the middle of the year.

The new rules are expected to level the playing field among banks which are regulated by MAS, and lending by other businesses.

Banks have welcomed the move.

Citibank says it will be assessing this new area of opportunity in greater detail to serve the needs of these consumers.

This group of customers is estimated to number between 450,000 and 500,000.

OCBC says the changes will give borrowers more options and open up opportunities for a group of individuals who previously had limited access to unsecured facilities. - CNA/so