MAS is confident that despite rising interest rates, there are no heightened risks that households cannot service their loans. Instead, household debt remains “generally healthy”.
Singapore has among the strictest limits in the world on household borrowing, says Ravi Menon, managing director of the Monetary Authority of Singapore.
“Stress tests by MAS suggest that most households should be able to service their debts even under scenarios of sharp interest rate hikes and significant income losses,” says Menon, speaking at the unveiling of the central bank’s FY2021/2022 annual report.
According to MAS, the median Total Debt Servicing Ratio (TDSR) for new loans issued over the past year is 43%, and the median loan-to-value (LTV) ratio for the outstanding stock of mortgages as of 1Q2022 is less than 50%.
Meanwhile, the proportion of non-performing mortgages “has remained low” at less than 1%, says Menon. Defaults on credit card debt have declined from 6.3% in 4Q2019 to 4.1% in 1Q2022.
Managing debt during this period is "critically important", says Menon. "It will create strains across the board. The question is: What is the capacity and resilience to withstand those strains."
He adds: "Our assessment is that most households in Singapore will be in pretty good shape. Borrowing in Singapore has generally been prudent, I think that reflects prudence on the part of households and a value system, as well as the potential safeguards that we put in place. Like I said, we've got some of the tightest rules on household borrowing in the world. It can't get much tighter than this."
Menon reiterates that MAS is closely monitoring any systemic risk to the financial system arising from debt related stresses in the corporate and household sectors.
“MAS subjects all major banks to rigorous stress testing to assess any vulnerabilities in their portfolios. Regulatory limits on sectoral exposures, such as for property, and to single borrowers help to ensure that banks’ corporate credit risk profiles are diversified,” he says.
MAS supervisors have stepped up engagement with banks on their asset quality, including the adequacy of provisioning against possible asset quality deterioration, adds Menon.
