S$970m invested in Singapore Savings Bonds to date: MAS

Singapore - About 35,000 people have parked S$970 million in 14 savings bond issues under the Singapore Savings Bonds programme, it was announced in parliament on Thursday.

Education Minister (Higher Education and Skills) Ong Ye Kung, speaking on behalf of Deputy Prime Minister and Monetary Authority of Singapore (MAS) chairman Tharman Shanmugaratnam, said in reply to queries from the backbench that the central bank is "encouraged" by the take-up rate.

However, Mr Ong, a member of the board at MAS, said in his update on the 14-month-old scheme that more can be done to raise public awareness and understanding of savings bonds in Singapore.

The Savings Bonds programme was introduced in September 2015 to expand the range of low-cost investment options for individual investors. The safety and flexibility of this instrument makes them suitable for those who want to set aside funds for a rainy day; they can also form part of an investor's portfolio, complementing other higher-risk or higher-return investments.

Mr Ong, referring to the common misperception that investments in savings bonds have to be locked up for 10 years, said:

"Although savings bonds mature in 10 years, an investor can withdraw some or all of the money invested, with interest, in any given month, without penalty. This feature compares favourably against fixed deposits."

He stressed that the fundamental driver of savings bonds are global bond yields, and that, over the last few months, the interest rates for these savings bonds have wilted because bond yields are globally low.

"When global interest rates normalise, we should likewise expect them to influence SGS (Singapore Government Securities) and savings bonds interest rates," he said.

Mr Ong added that there are ongoing efforts to generate greater awareness of the safety and flexibility that savings bonds offer to investors.

The MAS has held several publicity campaigns and community outreach activities; it has been working with partners such as MoneySense, the Institute of Financial Literacy and grassroots organisations to educate the public.

Separately, Workers' Party chairman Sylvia Lim posed a question on the restrictions under the Total Debt Servicing Ratio (TDSR).

The Aljunied GRC MP asked whether these could be relaxed so that borrowers can obtain credit facilities if they are able to offer unencumbered private property as collateral to financial institutions - even if they have breached the TDSR limits - so as to enable them to manage their overall loan commitments.

Under the TDSR framework, a borrower's monthly loan instalments should not exceed 60 per cent of his monthly income.

Mr Ong said that this limit is aimed at ensuring that borrowers have sufficient cash income to meet their debt obligations. The 60 per cent threshold applies to any property loan, whether it is a loan for purchasing a property or a loan secured on an unencumbered property.

Mr Ong said that, even with unencumbered private property as collateral, it is important for the borrower to have enough cash income to meet his debt obligation. If he fails to make repayment and defaults, the lender can seize and sell the property.

"This may not be a problem for a wealthy borrower, for example someone owning a few properties, but it would cause hardship to most borrowers offering the properties they live in," he said, adding that it would thus be more prudent to have the current rules as the default position.

Financial institutions, however, may approve property-loan applications where the borrowers' TDSR exceeds 60 per cent in exceptional cases.

This article was first published on November 11, 2016.
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