MAS reassures borrowers over rule on bank debt

MAS reassures borrowers over rule on bank debt
The Monetary Authority of Singapore was the first central bank of a non-Muslim majority jurisdiction to come up with an ongoing local currency Islamic bonds issuance programme.

SINGAPORE - The Monetary Authority of Singapore (MAS) has sought to allay concerns some borrowers had over a new rule requiring banks to review a customer's total debt before they issue new credit cards and other unsecured loans or increase credit limits.

The rule, which kicked in on June 1, had raised concerns that banks may conduct fresh credit assessments on their existing debts and may require them to make immediate repayments if they are assessed to have borrowed beyond their means.

In response to media queries, MAS said yesterday that the new rule does not require borrowers to immediately pay off all their outstanding debt.

At their own discretion, financial institutions may conduct fresh credit assessments to review facilities granted.

They may also discuss with customers with high debt how to bring it down, MAS said.

The regulator offered reassurance to borrowers that they would not have to make immediate repayments and that financial institutions will be expected to work out reasonable repayment plans with such borrowers.

MAS said that it encourages those borrowers who may be affected to approach their banks early to discuss possible repayment plans.

This new rule is part of changes that MAS is introducing to improve banks' lending practices and to ensure that customers make better credit decisions.

The changes started kicking in last December.

Ms Sandhya Devanathan, head of unsecured lending, Singapore, at Standard Chartered Bank, said: "With the establishment of a central credit bureau where all banks can assess the total bank-wide debt of customers, we will be able to make a comprehensive assessment of whether customers are borrowing within their means."

OCBC Bank's group lifestyle financing head, Mr Desmond Tan, added that the comprehensive credit assessment performed by banks is beneficial to both bank and borrower, while a DBS Bank spokesman said it can better advise customers on their financial status.

Credit Counselling Singapore (CCS) general manager Tan Huey Min said: "In the event where the borrower has too much borrowing and finds it difficult to work out separate repayment arrangements with all his bank creditors on his own, the banks may refer him to CCS for assistance."

Industry players also said consumers should update their current income information or statements with all their banks. OCBC's Mr Tan said this would help consumers avoid unintended disruption to the continued use of credit facilities owing to the new rule.

The Association of Banks in Singapore said that it is working with the major retail banks to develop common practices "that banks should adopt to facilitate gradual repayment through debt refinancing and restructuring for the affected bank customers".

This article was first published on June 4, 2014.
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