Uncovering Singapore’s overleveraged and vulnerable borrowers

A new report reveals the growing number of potential defaulters.

The Monetary Authority of Singapore considers a household overleveraged if they have a monthly debt-servicing burden greater than 60%, and the MAS’ most recent Financial Stability Review revealed that 5-10% of Singaporean borrowers are overleveraged.

Though this seems like a relatively small number, analysts now argue that the MAS’ parameters might be understating the true gearing of most Singaporean households.

According to CLSA, other international regulatory authorities and financial institutions are unwilling to lend to borrowers who have a TDSR above 40% or 50%.

If this parameter is applied, it would appear that 29% of Singaporean borrowers have a TDSR greater than 40%.

CLSA notes that Singaporean households with a TDSR above 60% are either relatively poor or relatively wealthy, with larger proportions of 25-29 and 40-44 year olds. 64% of overleveraged households are made up of five or more people.

Most households in this category also have breadwinners who work in the financial services and manufacturing industries, which are the two sectors that have seen the greatest job redundancies in past economic downturns.

Meanwhile, it will appears that borrowers with TDSR above 40% tend to be average to above average income earners. There is an outsized proportion of 30-34 year olds, and most of these households are made up of 3-4 individuals.

“Given the abnormally low interest-rate environment and our expectation that rates will begin to rise in 2H15, we test our borrowers to see what would happen if rates were to swiftly rise by 300bps. We conclude that at least 15% of borrowers would be overleveraged in this scenario.”