SINGAPORE, Sept 11 (Reuters) - Singapore announced new rules on Wednesday to cap the amount of credit card and other unsecured loans that banks can extend to individuals in a bid to rein in borrowing and prevent people from falling deeper into debt.
The changes, to be implemented in stages from Dec. 1, include a limit on the total amount of unsecured loans an individual can take to 12 times that person’s monthly income.
The changes are “aimed at improving lending practices by financial institutions and enabling individuals to make better borrowing decisions”, the Monetary Authority of Singapore (MAS)said in a statement.
Singapore, which has a population of 5.3 million, had 9.3 million credit cards in circulation at the end of 2012, up from 8.3 million at the end of the previous year.
Banks wrote off S$226.6 million ($178.64 million) in bad debt last year, an increase of 21 percent from S$186.7 million at end-2011.
The ratio of household debt to gross domestic product in Singapore is one of the highest in Asia at around 75 percent, up from 55 percent in 2010 and 45 percent in 2005, according to recent report by Standard Chartered.
But people in Singapore, which has more millionaires per capita than any other country, also own lots of assets, so the debt-to-asset ratio in the city-state is low relative to other Asian countries, the British lender added.
Currently, it is relatively easy for banks to issue credit cards in Singapore, with lenders such as Citibank advertising that they are able to do so within 24 hours of receiving an application.
But with the new rules, banks will be required to review a borrower’s total debt and credit limits before granting a new credit card or unsecured credit facility. Banks must also carry out such reviews before increasing the credit limit on such facilities, the central bank said.
“Most borrowers of unsecured credit should aim to stay well within the 12-month limit, as such borrowings typically attract high interest costs,” MAS said, adding that it is monitoring the situation and will lower the limit if necessary.