Singapore Personal and Overdraft Loan Balances Rise in Second Quarter as Credit Card Debt Declines, Banking News & Top Stories

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SINGAPORE – Credit card debt is on the decline but personal debt increased in the second quarter, with a sharp increase in borrowing among young people in particular.

New figures have shown that the amount of debt taken on by borrowers in their 20s increased by 19% in the first quarter, likely in response to financial difficulties resulting from the Covid-19 pandemic and its lockdowns.

Personal loan and overdraft balances for all age groups have increased, but people in their twenties have taken on significantly more personal loan debt since the second quarter of last year.

This has increasingly been made up of secured personal loans while unsecured personal loan balances have plummeted.

Secured personal loans rose 11.27 percent in the second quarter, while unsecured personal loans fell 6.49 percent, Credit Bureau Singapore (CBS) reported on Thursday (September 9th).

The CBS Consumer Credit Index report now available on the CBS website combines both secured and unsecured personal loans, overdrafts, and credit card spending to report average consumer balances.

Borrowing limits have been capped here since 2015 to help control unsecured debt.

Experts said unemployment and falling incomes could have pushed young adults with fewer resources to try to borrow to get out of the crisis.

Professor Sumit Agarwal of the National University of Singapore Business School noted that times are tough, especially for young people who may face uncertain job prospects.

Prof Agarwal said it doesn’t make much difference whether a personal loan is secured or unsecured, although secured loans may appear to be less risky as they would have a given collateral and interest rates tend to be. lower.

“It’s still a loan and eventually consumers should pay it back,” he added.

But he noted that borrowers, at large, behave rationally by taking out personal loans and overdrafts to maintain their lifestyle as interest rates are low. Reducing their spending would also hurt the economy.

He added: “Even at the height of the Covid-19 crisis, the unemployment rate was around 5%. Consumers are realizing that the unemployment rate will go down in a year and they will find jobs for pay off their debt. “

Professor Agarwal does not think the debt figures are a cause for concern unless the unemployment situation continues.

OCBC Bank chief economist Selena Ling told the Straits Times last month that the impact of rising personal debt among young people will depend on when things turn around.

“I suspect that temporary employment opportunities, especially for young people, may be more limited given the Covid-19 pandemic. This may be due to periodic episodes of tightening restriction measures with the rise in cases of Covid-19, “she said.

“If later on they can find permanent jobs, then they can pay off the debts. But if the term is extended, then default or default rates may increase.

Average personal loan and overdraft balances for borrowers aged 21 to 29 climbed to $ 59,141 in the second quarter, from $ 49,689 in the previous three months and about 82% above the 32,425 average. $ in the first quarter of last year.

There were 164,779 unsecured credit card, overdraft and personal loan borrowers in the 21 to 29 age group in July of this year, up from 173,922 borrowers last July.

The number of unsecured loan holders in all age groups was 2,008,418 in July, compared to 1,991,084 in the same month last year.

New credit applications for personal loans saw the largest increase at 10.4%, compared with an increase of 6.5% for overdrafts, 0.93% for mortgages and 0.49% for overdrafts. credit card.

New motor vehicle loan applications were down 10.8% in the second quarter from the first.

CBS data showed the personal loan default rate for borrowers under 30 fell from 4.55% in the first quarter to 4.28% in the second, while the overdraft default rate rose. from 4.35% to 4.52%.

Rate refers to the percentage of borrowers whose payments are overdue by 30 days or more.

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