Non-property loans may be subject to new rules

SINGAPORE - A framework that was recently imposed on banks approving property loans may be extended to other types of loans as well.

The total debt servicing ratio (TDSR) framework - introduced last month for property loans - takes into account a borrower's total repayments such as mortgages, car and student loans, and so on.

For those who want a property loan, banks will have to check and ensure that the total monthly debt repayments do not exceed 60 per cent of their gross monthly income.

The MAS said at that time that banks do not have to compute the TDSR of borrowers who apply for non-property loans as such loans make up a much smaller portion of a household's overall debt burden compared with a mortgage.

But it did say that it would "closely monitor the lending practices of financial institutions and data trends for non-property loans, and may consider applying TDSR rules if the need arises".

The MAS told The Straits Times by e-mail last week that it "expects banks to take a holistic and prudent approach in their credit assessment for both property and non-property related loans", even though the TDSR framework only applies to home loans right now.

It added: "The notice requires computation of the TDSR at the inception of the loan, but banks are expected to monitor debt repayments and loan performance on an ongoing basis as part of prudent credit risk management practices."

Tougher rules on non-property loans will affect some bank lending policies as not all take a borrower's total debt obligations into account when assessing applications.

But a few banks already consider a borrower's total debt for car loans.

"When we assess an individual's eligibility for any loan application, including auto loans, we take their existing financial commitments into consideration," said DBS Bank managing director and head of deposits and secured lending Lui Su Kian.

"This would include any outstanding mortgage or other personal loans."

Ms Lui said DBS uses a different set of criteria for unsecured credit facilities such as credit cards.

Citibank Singapore's business director for secured finance and e-business, Mr Peng Chun Hsien, said the bank typically looks at a borrower's total debt commitment when determining his eligibility for both mortgages and car loans.

"In addition to the customers' existing mortgage or car loans, we also take into consideration their unsecured credit lines such as credit cards and personal loans, as well as the loan tenures and the customer's income," Mr Peng added.

The Straits Times also understands that UOB has an existing TDSR framework in place for car loans.

"For all loans, UOB carefully assesses each application using a range of criteria from the applicant's income and credit worthiness to existing liability," a spokesman for the bank said yesterday.

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