By Gabriel Chen

SOME banks have responded swiftly to relaxed rules over unsecured loans by launching new products and tweaking their systems to attract more customers.

POSB, Citibank and United Overseas Bank (UOB) are gearing up to cater for the new market segment created by the regulation changes, while OCBC Bank has already noticed a surge in applications for unsecured loans but is treading cautiously on the lending front.

The new regulations - they came into effect on March1 - mean people earning $20,000 to $30,000 a year can now seek unsecured bank loans, capped by a credit limit equal to two months' salary. These could be credit lines, which are overdrafts extended by banks to customers.

Previously, people on lower incomes had not been eligible for such loans.

The potential new market is huge. In 2007, about 450,000 people fell into that income bracket.

People earning just $1,667 a month will be able to tap on services like Citibank's Ready Credit.

Mr John Denhof, Citibank Singapore's business director of credit payment products, said the bank will extend unsecured credit to customers with annual incomes of between $20,000 and $30,000 through a new version of Ready Credit.

The service will be launched shortly, Mr Denhof added.

Personal credit lines provided by banks usually charge interest of 16 to 18per cent a year on the amount borrowed. Credit cards typically charge interest of 24per cent a year.

Other banks have also got into the fray.

POSB has just launched POSB Loan Assist Plus, allowing customers earning a minimum gross annual income of $20,000 to apply for a personal loan that can go up to two times monthly income.

A one-year loan charges an effective interest rate of 17.97per cent a year; a two-year loan charges 18.16per cent a year.

OCBC's head of consumer unsecured lending, Ms Wong Chung Yee, said it received the first applications at its Sunday banking branches on March1, the day the new regulations took effect.

'The response has been encouraging but we are not rushing to encourage consumers to sign up,' Ms Wong said.

'Consumers should carefully assess what they need the funds for, and review their financial capabilities and ability to service a loan before applying for an unsecured line of credit.'

UOB said its 'offer will be dynamic to meet the needs of this customer segment', and that they are in the process of introducing a new product.

Maybank said there is now opportunity to offer credit to this segment, while HSBC is 'monitoring' opportunities.

The new rules do not apply to credit cards. The minimum annual income requirement for plastic remains unchanged at $30,000 for individuals under 55 and $15,000 for those over 55.

The Monetary Authority of Singapore (MAS) said the revised rules will benefit individuals who may have 'occasional genuine borrowing needs'. They will also bring bank loans in line with new rules governing moneylenders, which come under the Ministry of Law, not the MAS.

Like banks, moneylenders are also feeling the winds of change.

The new Moneylenders Act allows licensed moneylenders to charge higher interest rates on loans if the borrowers earn at least $20,000 a year, based on 'market forces' and after assessing the riskiness of the borrower.

Previously there had been a cap on the interest rate that a licensed moneylender could charge.

This was up to 18per cent a year for unsecured loans and 12per cent for secured ones. Those caps have been retained only for borrowers earning less than $20,000 a year and for those who can only borrow up to $3,000.

Mr G.Y. Tan, 70, a clerk at licensed moneylender Chuan Hua Company, said they will need time to understand what the changes entail, but they are not ruling out hikes in interest on loans dished out to even loyal customers.

'We get our money from banks to lend to people, but we also pay interest on our borrowings. Then we have rents and wages to worry about,' Mr Tan said.

Ascent Autocredit Company, a licensed moneylender, is also not ruling out higher interest rates, but mainly to unfamiliar customers.

'For people we've never seen before, it might be higher risk for us,' said its 58-year-old director Mr Peh, who declined to give his full name.

GE Money, which pioneered lending money to low-income borrowers on a mass scale here, now falls under the new Moneylenders Act, which also came into effect on March1, after operating previously under an exemption.

The firm said it welcomes the competition and will retain its strategy.

'We've been lending to customers in this income segment for four years and have solid insights on their needs and factors that would influence their decisions,' said chief executive Rahul Gupta.

• POSB Loan Assist Plus means customers may borrow up to two times their monthly income.
• People earning just $1,667 a month will be able to tap Citibank's Ready Credit.
• UOB says its new product 'will be dynamic' to meet the needs of this segment.

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This article was first published in The Straits Times.