Flash Bank Negara announces immediate measures to curb household debts

Flash Bank Negara announces immediate measures to curb household debts
Business & Markets 2013
Written by theedgemalaysia.com
Friday, 05 July 2013 17:36

Flash: Bank Negara announces immediate measures to curb household debts

Ref No : 07/13/04 Embargo : Not for publication or broadcast before 17 00 hours on Friday 05 July 2013 Measures to Further Promote a Sound and Sustainable Household Sector

Bank Negara Malaysia announces today, the implementation of a set of measures aimed at avoiding excessive household indebtedness and to reinforce responsible lending practices by key credit providers. These measures, which take effect immediately, complements the earlier measures introduced since 2010 to promote a sound and sustainable household sector.
The measures are:
Maximum tenure of 10 years for financing extended for personal use;
Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties;
Prohibition on the offering of pre-approved personal financing products.
The limits on financing tenure will not affect applications made before today.
Household debts have continued to increase at a strong pace, averaging at an annual rate of 12% over the recent five years. While this has been supported by positive income and employment conditions, in the more recent period, there has been a growing trend in the offering of financial products that are not in the long-term interest of consumers. This includes extended financing tenures of up to 45 years for house financing and 25 years for personal financing. While this may reduce the monthly repayments, in the long run, this increases the overall debt burden of households. Such practices encourage excessive debt accumulation by households and increase the vulnerability of this sector.
These measures are issued pursuant to section 31(1)(a) of the Central Bank of Malaysia Act 2009 and apply to all financial institutions regulated by Bank Negara Malaysia, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Berhad and AEON Credit Service (M) Berhad. This is to ensure consistency in the financing practices across all the key credit providers.
In addition to the above measures, the key credit providers are required to observe prudent debt service ratios in their credit assessment to ensure households have sufficient financial buffers to protect them against rising costs and unexpected adverse events. Households who have the financial capacity to take on borrowings will continue to enjoy access to financing. To enhance responsible debt management by households, Bank Negara Malaysia will intensify its efforts in financial education to all segments of society including young and first time borrowers from financial institutions. In addition, the framework for consumer protection will continue to be further strengthened under the Financial Services Act and Islamic Financial Services Act.

Bank Negara Malaysia
05 July 2013

© Bank Negara Malaysia, 2013. All rights reserved.

Update BNM announces new measures to curb household indebtedness
Business & Markets 2013
Written by Jenny Ng of theedgemalaysia.com  
Friday, 05 July 2013 17:49

KUALA LUMPUR (July 5): Malaysia’s household indebtedness could hit alarming levels if no steps are being taken now to prevent it from rising, according to Bank Negara Malaysia (BNM).

"Household indebtedness is on the increase as highlighted in BNM annual report. It's not at alarming levels yet but based on trends it will be," said BNM governor Tan Sri Dr Zeti Akthar Aziz at a press conference today.

Earlier, in a statement, BNM announced the implementation of a new set of measures aimed at curbing excessive household indebtedness and to reinforce lending practices by key credit providers.

These measures, to take effect immediately, are:
* Maximum tenure of 10 years for financing extended for personal use;
* Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential PROPERTIES [];
* Prohibition on the offering of pre-approval personal financing products.

Zati said: "These measures apply to banks and DFIs (development financial institutions) under the regulatory oversight of the central bank.
"They are aimed at the household sector to ensure it is sustainable over the medium term. This ensures its contribution to economy in sustainable manner.”

Responding to BNM measures, Datuk Mohd Redza Shah, president of The Association of Islamic Banks in Malaysia (AIBIM) said in a statement:
“These measures indicate concern by the Central Bank on household debt, in which household debt to GDP ratio has risen from 70% in 2009 to 83% currently.
“It will put in check certain financing and lending practices of non-bank financial institutions which have extended credit to very long tenures. Providing personal financing beyond 10 years is imprudent and going beyond 35 years for house financing is unrealistic"

AIBIM said it lauded BNM measures as “it promotes responsible financing and sustainable consumer credit growth".