Breaking Views Bank Negara is "short-sighted" towards household debts problem in Malaysia

Breaking Views Bank Negara is "short-sighted" towards household debts problem in Malaysia
Business & Markets 2014
Written by Lim Guan Eng, Chief Minister of Penang
Friday, 21 March 2014 14:54

THE latest Bank Negara Annual Report 2013 has revealed that Bank Negara, the Central Bank of Malaysia, is being short-sighted and uncaring at best or irresponsible and unprofessional at worst towards the problem of Malaysia having the second highest level of household debt in Asia.

Bank Negara dismissed the rise in the level of household debt in Malaysia from 81.1% of Gross Domestic Product(GDP) in 2012 to 86.8% of GDP in 2013 as not posing any risk to financial stability.

Bank Negara should realise that the reason for is that our income levels are stuck in a “glacial trap” with inflation outpacing wage rises. This has forced many households to rely on credit loans to make ends meet and even resort to loan sharks when they are unable to get loans from financial institutions.

With total household borrowings at RM854.3 billion in 2013, the proportion of households having loans with those having monthly earnings of up to RM3,000, accounted for 27% of total household borrowings at RM230.l7 billion. Bank Negara also said that the aggregate leverage for households earning up to RM3,000 a month was seven times(measured as the ratio of outstanding borrowings to annual income) is high and should be reduced.

This only proves that for lower income groups, their incomes are unable to keep up with inflation, forcing many to borrow to survive to maintain their living standard. With such high rates of outstanding borrowings that is 7 times their annual incomes, it is difficult if not impossible for lower-income groups to get approvals of housing loans from banks or financial institutions.

How can first-time buyers from lower-income groups afford to buy their own homes when Bank Negara has reduced the maximum tenure for loans of property purchases from 45 years to 35 years? Such reduction in tenure will only increase the housing instalments payments and make it more difficult for lower-income groups to qualify for loans.

Bank Negara should reinstate the Developer Interest Bearing Scheme(DIBS) for first-time buyers to enable them to realise their dream of owning their own homes. There have been many complaints of banks not approving housing loans to lower-income groups because of their low repayment ability.

For this reason the Penang state government has introduced the Shared Ownership Scheme(SOS) for low-cost houses to help lower-income groups. Under the SOS,the property is jointly owned by the government in giving out as government loans of up to 30% of the property price to lower-income groups interest-free. Many lower-income groups are able to qualify if they need to borrow only 70% of the property price.

For the sake of housing democracy, DAP urges Bank Negara to introduce a SOS for affordable homes and public housing to help first-time buyers qualify for loans to buy their own homes.