Personal debt bomb
THE real star behind the recent Monetary Authority of Singapore statistics is consumer loans and not business loans ('Business loans surge in sign of upswing'; last Thursday)Jan 5, 2011. Taken from the Straits Times.
Business loans actually contracted from July 2009 until March last year, and showed anaemic growth until the second half of last year.
By contrast, total consumer loans have never declined and have grown steadily with usually double-digit growth year on year. Even in the depths of the financial crisis, total consumer loans were growing at a high single-digit pace from October 2008 to September 2009, before spurting into double-digit territory a year ago.
The growth of total consumer loans has quickened from 10 per cent a year ago to more than 18 per cent for the past three months to reach $150 billion. Business loans managed only a double-digit growth from October to November last year.
The performance of business loans therefore pales in comparison with the growth of consumer loans.
The fast growth can be explained by housing loans. January 2008 housing loan figures were already 16 per cent higher than the corresponding figure in 2007. This double-digit performance lasted until October 2008, when growth figures slipped into the high single-digit figures before going back into double-digit growth in July 2009. Total housing loans are now $111 billion.
Since May last year, housing loans have been growing at more than 20 per cent year on year, a growth rate that must be the highest ever seen in Singapore.
Two other milestones which merit mention are that the total number of main credit cards crossed six million in October last year; and second - which is of greater concern - that rollover balances breached the $4 billion mark in November. This is the amount that is not paid by cardholders and on which interest is charged at usually 24 per cent per annum. Rollover balances have been growing at an average annual rate of 11.5 per cent for the past two years.
Personal indebtedness in Singapore is, therefore, growing unabated and the pace has quickened this year. The recent big surge in housing loans and the growth of rollover balances raise the question of whether Singaporeans, already facing one of the highest debt-to-income ratios in the world, have placed themselves in a very precarious situation.
If the economy stumbles and real estate prices decline, many individuals will be unable to pay off their debts.
Kuo How Nam
President
Credit Counselling Singapore
ADB: 51% S'pore banking loans to property is 'Worrying'Dec 08, 2010
SINGAPORE - The Asian Development Bank (ADB) said yesterday that Singapore's fast-rising home prices are "worrying", as real-estate lending accounts for more than half of total loans in the banking system.
According to the latest issue of the ADB's Asia Economic Monitor, the share of property-related loans in total loans is as low as 9 per cent in South Korea, 15 per cent or less in Indonesia and the Philippines, and below 20 per cent in Hong Kong, Thailand and China.
At 51 per cent of advances, Singapore's banking sector's exposure to property is the highest among the nine major economies of East Asia, followed by 42 per cent in Taiwan and 38 per cent in Malaysia, ADB data showed.
The ADB report comes less than two weeks after the Monetary Authority of Singapore said in its annual Financial Stability Review that household debt has been growing at a faster rate in recent quarters - driven largely by housing loans which account for the bulk of household borrowing.
The study pointed out that Singapore had already taken steps to cool the property market, in line with measures adopted by other economies in the region.
As a result, the increase in home prices had started slowing in the third quarter in eight out of the nine East Asian economies, with Thailand as the only exception.
The ADB also called for greater cooperation among East Asian authorities on exchange rates, so as to reduce the volatility of currency fluctuations within the region and benefit the production network that spans East Asia. For Asean nations and China, Japan and South Korea, cooperation on exchange rates could also help "manage surging capital inflows to the region and better rebalance the sources of growth", the study said.
A single currency is not on the menu because "the recent debt crisis in the euro zone shows that stronger institutions than previously thought are required for monetary unions to function properly", the ADB said. Nor does it recommend that regional countries peg their currencies to one another's or benchmark their exchange rates to the "Asian Monetary Unit", the artificial basket of regional currencies first mooted by Japanese scholars.
East Asian countries could instead pick a reference currency from outside the region - either the US dollar, or a combination of the dollar and the euro - and then seek to maintain stability of their home currency's exchange rate against the reference unit.
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Hey Kay,
ReplyDeleteKeep up the great work with your blog. In a few months, I'll be publishing a personal finance book with Wiley, called The Millionaire Teacher.
In it, I'm mentioning some work you did comparing the STI with a basket of unit trusts.
I'll mention your blog site in the book as well.
Keep up the great work.
Andrew Hallam
www.andrewhallam.com
Hi Andrew,
ReplyDeleteThanks for your compliment. All the best for your personal finance book.
Kay