The Monetary Authority of Singapore (MAS), the country’s central bank, has unveiled a new rule aimed at preventing borrowers gather excessive unsecured debts.
The new Credit Limit Management Measure, which will be effective from 1 January 2018, will cover unsecured credit facilities including credit cards, personal loans, and overdrafts. The move will not impact secured credit facilities such as housing loans, motor vehicle loans, loans for medical, education or business needs.
The rule will cap the additional unsecured credit that a financial institution (FI) may extend to a borrower with outstanding unsecured debts exceeding six times his/her monthly income.
Under the new measure, an FI will be barred from granting increase in credit limit or new unsecured credit facilities that will lead to borrowers’ total credit limit exceeding 12 times their monthly income.
The rule does not require individuals to lower the credit limit of their existing credit facilities.
MAS assistant managing director of policy, risk & surveillance Loo Siew Yee said: “The measure announced today is pre-emptive in nature – it will help borrowers manage their unsecured debts early and avoid becoming highly indebted.”