Singapore’s Monetary Authority cracks down on consumer credit

125px-Flag_of_Singapore.svgThe Monetary Authority of Singapore proposed tightened regulations on consumer credit cards last week in order to curb consumer borrowing.

Singaporeans, with a household debt-to-GDP ratio lower than that of developed nations, have increased their borrowing. New credit card loans totaled $6.9 billion in October, up from $4.4 billion in October 2007, The Wall Street Journal reports.

Near-zero interest rates resulting from loose monetary policy after the financial crisis have prompted the rise in consumer credit. Singapore’s interest rates are among the lowest rates in Asia. The nation’s central bank uses the exchange rate to control monetary policy rather than setting a benchmark rate, resulting in lending more closely linked to rates established by the U.S. Federal Reserve.

“The ultra-low interest rate environment has been a big driver of rising consumer credit,” DBS economist Irvin Seah said, according to The Wall Street Journal . “When real interest rates are already negative, there is every incentive to get yourself over-leveraged.”

Seah said that mortgage loans pose a greater threat to Singaporeans than credit cards because consumers borrow larger amounts, adding that the MAS is moving to curb “over-borrowing.”

New rules proposed by the MSA would require banks to take a closer look at a potential borrower’s outstanding debt before lending. Consumers who are more than 60 days past due on a debt will not be permitted to charge more on cards issued by the bank, and consumers who carry a balance greater than two months of their income for more than six months will also be prohibited from charging more to cards, The Wall Street Journal reports.