(SINGAPORE) The economy has been humming along for several years now, so more people could be taking risks by borrowing larger amounts than before. Some have got burnt and bankrupted. What seems troubling is that not only are bankrupts owing bigger sums of money but more younger people are staring at financial ruin than before.
Last year saw bankruptcy orders taken out against 2,716 people who owed a total of $489 million, according to data from credit analysis firm Amequity Pte Ltd. In other words, each person bankrupted owed an average of $180,000.
This amount has almost doubled in the first four months of this year. From Jan 1 to April 24 this year, 621 people owing some $223.6 million were made bankrupt. This means each of them owed $360,000 on average.
Even as they owe more, the bankrupts are also getting younger. Of those who went bust in the first four months this year, 263 (42 per cent) were younger than 40; in 2007, this younger group comprised 34 per cent of those bankrupted. In Singapore, an individual must be over 21 before taking out a loan.
Observers say lenders are able to reach more young people to sell them loans via the Internet - a channel that was less pervasive, say, three years ago. 'Lenders are more aggressive reaching the young via the Internet . . . whose lifestyle expectations have gone up,' said Aaron Chan of Advent Law Corp.
Others say banks are lending out more and are also harsher on delinquent creditors as they move faster to recover overdue payments because the cost of funding has increased.
Many borrowers are in trouble because their businesses are finding it hard to make ends meet from higher wage demands and, in particular, rising rentals.
'A lot of business people are going bankrupt because they can't meet the rentals,' said Leong Sze Hian, president of the Society of Financial Service Professionals. He also volunteers at the Official Assignee's office.
Mr Leong said banks now have to turn over loan volumes faster than ever and have to make more frequent collections as the cost of funding has risen due to the US sub-prime crisis and also Basel II rules adopted by local banks in January this year. Basel II refers to the capital banks have to hold for different kinds of risks.
Some people go bust because they can't pay up credit card bills but there are also some among the young who are in over their heads because their businesses got into trouble.
Some stood as guarantors or are also directors of their companies which are being wound up, the data showed. Among them are two directors of a leasing company, aged 33 and 35, who owe $5.49 million.
Last year, a 25-year-old hawker who sold cooked food and drinks was a partner in a few companies which went into liquidation with $5.5 million debts.
More writs of summons filed by major banks and other lenders were sent to those under 40 than before, data from Amequity showed. A writ of summons is typically the first step towards recovering money past the payment date. Lenders would send these writs usually for amounts of at least $5,000 and past due after 90 days, said litigation lawyer William Lai, who is also the founder of Amequity.
Last year, for United Overseas Bank (UOB) - which was the top bank in terms of writs filed - some 90 per cent of the amount owed was by those 40 and older. But so far this year, the writs filed by UOB against those younger than 40 made up almost 40 per cent of the overdue debt.
Standard Chartered Bank and OCBC Bank, the other leading banks in filing writs, showed a similar pattern. This year, writs filed by Stanchart against those under 40 made up almost 51 per cent of the bad debt, compared to 31 per cent in 2007. The corresponding figures for OCBC are 47 per cent this year versus 22 per cent last year.
The majority of bankrupts live in HDB flats. One is a female director of companies engaged in construction and development. The companies are being liquidated with some $73 million debts. She used to live in a private property which was sold in 2006 for less than $2 million, according to Amequity.
This article was first published in The Business Times on May 29, 2008
