Lenders write off 10,533 bad car loans

Banks and finance companies wrote off 10,533 bad motor loans last year, slightly fewer than the 11,001 written off the year before.

According to the Credit Bureau (Singapore), the figure refers to loans taken by borrowers who have missed a number of repayments and which the lenders have exhausted all means of recovering.

It said the point at which a loan is written off varies from lender to lender, but The Straits Times understands it is typically after three missed instalment payments.

Last year's bad loans translate to 4.31 per cent of 244,488 car loan holders as at Dec 31 last year. The previous figure was 4.28 per cent of loan holders as at Dec 31, 2015.

The bureau said some loan holders have more than one loan, but the vast majority had one.

Meanwhile, the bureau found that the number of delinquent debtors - those who miss one month of their instalment payment - has dropped.

At the end of last year, about 1.3 per cent of car loan holders had an instalment that was overdue by more than 30 days, compared with 2 per cent for the same time in 2015.

Credit Bureau (Singapore ) executive director William Lim said: "Motor loan delinquency rates have dropped to very healthy levels. The delinquency rate of 1.3 per cent in December last year represents a 66 per cent drop from the high of 3.82 per cent recorded in 2012 prior to the institution of curbs on motor vehicle loans by MAS."

In May last year, the Monetary Authority of Singapore (MAS) eased the curbs to allow buyers to borrow up to 70 per cent of a car's purchase price, up from 60 per cent. This was for models with an open-market value (OMV) of up to $20,000. Buyers of cars with OMVs of more than $20,000 could borrow up to 60 per cent of the purchase price, up from 50 per cent.

The maximum loan tenure was raised from five to seven years.

SIM University finance professor Sundaram Janakiramanan said it was possible to form a "meaningful inference" between delinquency rate and loan curbs "only if the number of delinquency cases is available for those who borrowed before the curb, during the curb, and after relaxation of the curb".

"Since people could borrow for seven years before the curb, loans taken up in 2009 would still be outstanding in 2016," he said.

Nanyang Business School adjunct associate professor Zafar Momin said that what was likely to have contributed to the reduction in delinquency car loans was a more robust credit-screening process. "For example, several lenders used to primarily look at monthly loan amounts versus monthly income in the past. However in the last few years, they have begun to broadly assess the consumer's debt-servicing capability," he said.

He cited applying a total debt servicing ratio which considers overall debt obligations relative to income as one such step. "Such improvements in credit scoring by themselves would have increased the quality of the loans and reduced delinquency rates across the board," he noted.

A retired senior retail banker, who did not want to be named, said the statistics may not fully reflect the actual situation. "In today's environment, lenders may exercise more flexibility to keep a loan going," he said. "If a borrower is behind by three months, but pays up two or even one, they may decide to keep him as long as the vehicle's residual value is higher than the outstanding loan amount.

"Otherwise, if they repossess the car, they will almost always make a loss when reselling it."

Meanwhile, the credit bureau also found the size of loans had grown since the MAS eased car loan restrictions last year.

Data based on loans for both new and used motor vehicles disbursed showed that in December last year, consumers borrowed an average of $65,868 to buy a car. This was a 10.9 per cent increase from December 2015's average of $59,408.

christan@sph.com.sg

This article was first published on Feb 7, 2017.
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