FIs disallowed from granting further unsecured credit to borrowers whose outstanding interestbearing unsecured debt aggregated across FIs exceed the borrowing limit as specified by MAS for 3 consecutive months or more (“borrowing limit”). The borrowing limit is:
(a) 24 times monthly income with effect from 1 June 2015;
(b) 18 times monthly income with effect from 1 June 2017; and
(c) 12 times monthly income with effect from 1 June 2019.
Why is MAS setting a limit on a borrower’s credit card and unsecured borrowings, aggregated across FIs?
The borrowing limit aims to help individuals avoid accumulating excessive debt. An aggregate limit across FIs achieves this objective more effectively than the current limit placed on each FI.
With the limit on aggregate credit card and unsecured borrowings, FIs will not be allowed to grant further credit to a borrower if his aggregate interest-bearing unsecured debt across FIs exceeds the borrowing limit for 3 consecutive months. The limit will be phased in over four years:
- 24 times monthly income from 1 June 2015
- 18 times monthly income from 1 June 2017
- 12 times monthly income from 1 June 2019.
The gradual reduction of the limit provides borrowers with more time to adjust and manage their debt levels.
Notwithstanding the regulatory limit, FIs have commercial discretion to decide on their credit policies, including tighter borrowing limits.