Household debt manageable: Credit Suisse Swiss bank Credit Suisse waded into the debate over Singapores household debt yesterday, taking the side of those who argued that the sharp rise in borrowing over the last five years was not a big deal. This is because at the macro level, households are wealthy enough to pay off their debt with liquid assets and shares in the event of an economic shock. Moreover, a Credit Suisse survey of 300 locals found what the government had also noted: the proportion of households that might have overstretched themselves is small, and households with higher debt burdens are richer to begin with anyway. Household balance sheets look to be strong on aggregate, said Credit Suisse economist Michael Wan. He said that while the risk of a household debt crisis is very small, discretionary spending from over-leveraged households might still drop once America tightens its monetary policies and causes interest rates to rise. Mr Wans report noted how household liquid assets comfortably exceed total liabilities like house and car debt. Currency and deposits constituted 89 per cent of Singapores gross domestic product (GDP) in Q2 2013, while household liabilities - mortgages, motor vehicles, credit cards and others - only add up to 77.4 per cent of GDP. Apart from liquid deposits, households still hold another 48.3 per cent of GDP in shares and securities. From a cashflow perspective, household incomes are still rising, though not as quickly as the rise in household debt. But the current household debt to income ratio of two times, having risen from a low of about 1.8 times in 2008, still compares favourably with more than 2.3 times in 2000 and more than 2.2 times in the five years following that. We think that this is still manageable, Mr Wan said. A Credit Suisse housing survey also found that among respondents with liquid assets of more than $200,000, 23 per cent have mortgage debt service payments above 30 per cent of income. Fewer of those with less cash had a similarly high debt burden. Some 16 per cent of those with less than $200,000 in cash fell into the category of those who pay more than 30 per cent of their income in mortgage service payments. The markets anxiety with household debt began in July, when various organisations, including UBS, Standard Chartered, Citi and Moodys, warned that low interest rates had led to Singaporeans building up high levels of debt to finance property purchases. The Monetary Authority of Singapore (MAS) said in July that about 5 to 10 per cent of households might have overstretched themselves beyond what the framework allowed. But MAS board member Lawrence Wong said in Parliament in August that household balance sheets are in good shape and heavy borrowers tended to have above-average incomes, which means they might not necessarily default even if interest rates rose. Source: Business Times –24 October 2013
Posted on: Thu, 24 Oct 2013 02:04:00 +0000
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