08 August 2006

Great Timing for Our Gamblers

Are we all set for the great casino game yet? About one year ago, I commented on the nation's new gambling plans and wrote this:

..... when the casinos arrive and the loan sharks get locked away, it may well be the banks which celebrate most exuberantly. Addicted Singaporeans will surely borrow. They can even borrow to pay the $100 casino entry fee. Remember - no questions asked. That's a basic characteristic of personal credit lines.

And with the serious competition - loan sharks - locked away in jail, it's the banks which will enjoy this exciting spin-off from our wonderful integrated resorts.

Well, see what's happening now. Watch closely, as the MAS looks into dismantling Singapore's current rules on unsecured personal credit ... to allow everyone - the rich, the poor, the juvenile - to borrow more and more. All just in time for some fun & sun on Sentosa!

Credit cards may fit in shallower pockets
(TODAY) Tuesday • August 8, 2006
Lee Ching Wern

IN A move that could bring easier unsecured credit to the Average Joe and potentially higher credit card limits for those earning more, the Government is now looking at tweaking the credit regime.

The Monetary Authority of Singapore (MAS) and the Ministry of Law have sought public feedback on a number of proposed changes.

Until now, you needed an annual income of at least $30,000 to obtain unsecured credit — such as a credit line or card — from a bank. This limit could be reduced to $20,000. The income requirement for credit cards, however, remains $30,000.

At the same time, a bank until now could allow you a limit of up to twice your monthly salary on both credit cards and other unsecured credit facilities — through ATM cards, for example. For those earning more than $30,000 a year, these limits will be merged into an aggregate of four times your monthly salary so that you can pick the form of credit you want.

For those with annual income of at least $20,000 and below $30,000, the maximum aggregate credit limit will be twice their monthly income.
Oh, wait, wait. Now of course the government is not changing the rules so that more Singaporeans will gamble. Mr Wang was only referring to what Singaporeans can do, and what many of them would no doubt do, with the new sources of borrowing that the government is making available to them.

An MAS/Ministry of Law statement said that the changes "do not signal a relaxation in the Government's policy stance towards unsecured credit".

Recent advances in risk management practices and the introduction of the credit bureau have made unsustainable debt for borrowers less likely.
One thing that concerns me about these rules is that while they limit the amount that an individual can borrow from any one bank, nothing stops the individual from going to many different banks to get more credit cards and credit lines.

For example, suppose I earn $4,000 a month. Under the new rules (if they're passed), if I go to DBS, I can try to get aggregate unsecured borrowing limits of up to $16,000. Now if I then go to UOB, OCBC, Standard Chartered Bank, HSBC, Citibank, ABN AMRO and Maybank, theoretically I could get up to $16,000 x 8 = $128,000.

Wow, simply irresistible .... for gambling addicts.

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PanzerGrenadier said...

Not sure if the credit bureau will help in this regard.

Assuming the borrower is delinquent on his unsecured loans from Bank A, when the borrower goes to Bank B later and tries to obtain the unsecured credit, then Bank B should have checked against the borrower's records against the credit bureau and detected the delinquent payments or bad credit history. Of course, if the borrower is smart enough to pay the minimum amounts then the banks would be none the wiser?

Anonymous said...

I would view from the perspective of choice and the lesser of 2 painful choices ie illegal moneylending or legalised moneylending with attendant legislative or economic benefits for the govt coffers.

Anonymous said...

Borrower can repay minimum sum to one bank by borrowing from another bank; then repay the minimum sum to the 2nd bank by borrowing from a third bank .... and it goes on and on, until he runs out of banks in Singapore and everything crashes.

It's not like the banks don't know this. I get banks calling me on the telephone, telling me that if I get a personal line of credit from them, I can use it to repay other banks, and I'll be charged a lower interest rate on my latest borrowings ....

PC said...

Well.. yes and no...

When one talks of a "gambling addict", one can picture a person already mired in heavy debt.. desperate and all.

The Credit Bureau does limit one's ability to borrow extensively. So, unless one is planning to become a gambling addict and chooses to open credit lines across all banks at the onset, it is generally difficult for one to go the route of bank facilities if one is already deep in debt.

In any case, I half suspect there'll be red flags if you go about opening multiple credit lines.

Anonymous said...

Ah, perfect timing once again :

Compliments of Credit Bureau Singapore : My Credit Monitor notifies consumers - through e-mail or post - each time a lender makes an enquiry on their file or if a missed payment is loaded on their file.


Anonymous said...

Many Singaporeans already hold many credit cards (like four or five or six), even if they only use one or two cards regularly. They just want more cards in case they go to a place and find that there's a discount if you use a particular card. Having many cards is not at all unusual because banks are so aggressive in attracting card customers with free gifts, promotions etc.

These people are a recipe for disaster when the casinos open and if the addiction hits them. They already have their lines.

I'd like to know how many of you who have a credit card, actually have only ONE credit card. I have yet to come across a Singaporean who qualifies for a credit card, and has only ONE credit card in his/her wallet or purse.

Anonymous said...

Even without the IRs, many already are struggling with mounting debts and huge credits roll-over as it is.

By 'tweaking' the rules on borrowing is liken as opening a flood gate or a bigger sh*t hole for the public to fall into. (Could this be one of many potential social problem (debts) arising from our IRs?)

My profession is in financial advising and my course of working with many has shown that even without IRs, many are already slave to material trappings and if can't afford it, use 'future' money to pay first. Once the debts are more than 1 to 2 months of your salary, you are, as the saying goes (Hooked, line and sinker)

The 'habit' in how we spend/use/treat our money should be address. With the right perspective, even they (Govt) allowed another 5 IRs to be open, will have little or no impact to us.

Some saying to remember by;
Easy come ...
No free lunch under....
If its too good to be true....
Don't covet....
Be content....

Independent financial advisor at large

Anonymous said...

let's be honest folks, the govt probably does not care a hoot whether families break up or people go bankrupt through overspending or gambling... what it cares, is the social spillovers and negative externalities that such personal problems may cause, particularly if the nos are large enough. Its modus operandi can be summarized in a single word: profit

Anonymous said...

Personally I find it worrying that these changes are coming at a time when the casino is also on its way.

The rules are going to allow a certain class of the population to be able to borrow on unsecured basis for the first time ever.

And you know how it is with these things .... the first credit card is the most dangerous, because you're still dumb and inexperienced enough to somehow feel "powerful" with that first card.

And that "powerful" feeling is gonna get you wiped out at the casinos ....

Anonymous said...

If someone borrows a lot of money for gambling and cannot pay it back, then the banks will be unable to recover their loans. Perhaps banks should be allowed to shoulder as much risk as they desire in an open market, as this can be beneficial to the economy. There are legitimate needs someone may have for borrowing money. If banks don't care what the money is used for, then I don't care either. I especially don't consider the morality of what someone is doing with their money. That's their own business, and I certainly wouldn't want the government to dictate morality to me. They do enough of that already.

Anonymous said...

Morality and medical problems are not the same. And addictions ARE medical problems. Some of us even have genes which predispose us to a gambling addiction.

Anonymous said...

"Perhaps banks should be allowed to shoulder as much risk as they desire in an open market, as this can be beneficial to the economy."

Haha, no, I don't think that MAS is going to close down anytime soon. Banking industry is highly regulated, not just in Singapore, but everywhere else, and for good reason ... The nature of banks is that you can't just let them do whatever they like.

CK said...

"I have yet to come across a Singaporean who qualifies for a credit card, and has only ONE credit card in his/her wallet or purse."

I am here.

Anonymous said...

Plan: First world banking hub.

Method: Bleed the people dry.

Anonymous said...

Remember: banks are no different from loansharks. Both thrive on debt and interest.

Except banks are scarier because instead of splashing paint on your doorstep, they strip you of your assets. And it's all legal.

Remember: the PAP government cares fuck all about the social ills once it embarked upon the path to economic salvation through casinos.

Can't resist the pun: "All bets are off now".

Anonymous said...

"I have yet to come across a Singaporean who qualifies for a credit card, and has only ONE credit card in his/her wallet or purse."

The person who said the above statement is obviously a moron. A moron stuck upon ivory towers and probably didn't mix around much with less ostentatious people.

Yours truly qualifies for a credit card, and isn't holding a single one. Because...let's see... I don't see the need for one?

Cash and NETS will do nicely? Debit card works for online transactions too, if the need arises?

Don't want to be a debt slave to banks? Don't want to flaunt my 'plastic wealth' every time I open my wallet?

Yes, card monster, you are a moron who makes sweeping statements. You befit your nick. You befit your kind.

Good day.

Kevin said...

MrWang: Remember my friend's assault case? This showed up recently, which looks very similar to my friend's case: http://straitstimes.asiaone.com/portal/site/STI/menuitem.c2aef3d65baca16abb31f610a06310a0/?vgnextoid=7532758920e39010VgnVCM1000000a35010aRCRD&vgnextfmt=vgnartid:1a475cc2f09ec010VgnVCM100000430a0a0aRCRD

Gilbert Koh aka Mr Wang said...

I do recall, however, a Straits Times article saying that according to a Citibank study, the average credit card holder in Singapore has FOUR credit cards.

"Yours truly qualifies for a credit card, and isn't holding a single one. Because...let's see... I don't see the need for one?"

Using one makes economic sense, if you will not be tempted into overspending. You collect "reward points" for spending what you would otherwise spend anyway (via NETs or cash or whatever); you then get your redeemable gifts or cashback dividends or whatever.

Basic idea is that whenever you use your credit card, the bank takes about 2% from the retail merchant. Eg you spend $100 on your credit card; the the merchant actually gets $98 and the bank takes $2. The more you spend, the more the bank makes, so the bank induces you to spend more by providing an incentive - it will give you a part of the $2 back (say $0.50) in the form of redeemable gifts or nowadays, cash rebates (eg Citibank Dividends card or POSB Everyday Card - I think). And of course, when the bank offers you a redeemable reward (eg a free Thumbdriver), the cost of the reward to the bank (that is, of obtaining the Thumbdrive) is lower than what it would cost you to get the same Thumbdrive player yourself (since the bank is purchasing Thumbdrives in bulk for its customers).

So you do stand to benefit .... IF you will not incur interest (that is, you always pay on time) and IF you will not be tempted to buy things which you otherwise wouldn't buy.

Personally I would hardly ever use NETS or cash to pay for anything that I could pay for by credit card (hey, free points). However, I also never incur interest because I use GIRO to repay in full on each credit card.

Anonymous said...

I also have a number of credit cards and they are all on GIRO.

To 'maximise' the points that I accummulate, I concentrate all of my spending on one of the cards (the one which gave me the 'most' value). Also, I channel the payment of some of my monthly charges like handphone, etc, to the card.

Recently, when the annual renewal fees for one of the cards came along, I called to cancel the card. The bank suggested that I redeemed some of my points in lieu of payment which I rejected. Then they counter-offered that I spent at least $X in the next mth to qualify for waiver, which I also rejected. In the end, they suggested that I need only charge to the card 3 times in the next one month (no min required), which I took up.

I guess you could call me a squirrel. I was prepared to cancel the card than to redeem my points for the annual fees. :-)

Anonymous said...

To anonymous who said "Morality and medical problems are not the same." --
I think it's a very fine line to try to legislate. For example, governments previously erroneously claimed that gay people were afflicted with a "medical condition" to justify discrimination and punishment. Singapore laws, even today, provide for life imprisonment of homosexuals. Perhaps addictive gamblers afflicted with the gene of addiction that you are referring to can be treated the same way. Let's lock them up to stop them from spending money.

Societies that want increased individual liberties must be prepared to accept individuals that do not act like everyone else wants (including the government). Perhaps Singapore is not ready for this yet.

Anonymous said...

Obviously not many of the commenting audience are bankers. Or at least not familiar with consumer finance. For those who proudly proclaim their lack of utilization of the financial tools provided by the banks, one can only assume that - while they are right in saying that they are free of debt - they know very little about wealth generation. This is, of course, directed to anon who is so harsh with card monster. =)

Mr Wong, on the other hand, seems to have a nice consumer take on personal financing. At the end of the day, it is a personal choice. These are nothing but tools, it is YOU who fuck it up.