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Most Singapore households should be able to service loans even with sharp rate hikes: MAS

By Jovi Ho,

The Edge Singapore

/ EdgeProp Singapore |

July 19, 2022 12:27 PM SGT

MAS is confident that despite rising interest rates, there are no heightened risks that households can service their loans and that household debt remains “generally healthy (Photo: Samuel Isaac Chua/EdgeProp Singapore)

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SINGAPORE (EDGEPROP) - MAS is confident that despite rising interest rates, there are no heightened risks that households can service their loans and that 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.

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.

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