PUTRAJAYA, Sept 11 — Civil service representatives today sought Prime Minister Datuk Seri Najib Razak’s intervention to undo Bank Negara Malaysia’s “drastic” move to shorten loan periods beginning July.

Representatives from the National Cooperative Force Malaysia Berhad (ANGKASA) and the Congress of Unions of Employees in the Public and Civil Services (CUEPACS) wanted the repayment period for personal loans to be extended to 15 years from 10.

“Surely this would have affected (civil servants) financially since they have to settle (the loans) quicker and in a larger amount,” ANGKASA president Datuk Abdul Fattah Abdullah told reporters after the meeting here.

“We support the government’s efforts to reduce household debt, but we suggest it shouldn’t have been done drastically and caused a major burden to lenders.”

The groups have described the meeting with Najib as “positive”, and they expected a decision to be announced either before or during Budget 2014 announcement in October.

“It would be a gift to the civil service and those with low wages,” he added.

Abdul Fattah was also unperturbed by the prevalence of personal loans among civil servants, claiming that Malaysia’s household debt-to-gross domestic product (GDP) ratio is still “not troubling” compared to Singapore and the US.

His remarks comes as BNM Governor Tan Sri Dr Zeti Akhtar Aziz insisted the same earlier today, saying that non-performing loans currently represent only two per cent in Malaysia’s household sector, while the majority of home loan borrowers are largely considered creditworthy.

In July, BNM had introduced three new measures to curb Malaysia’s rising household debt which included reducing the maximum tenure for personal loans to 10 years from 25, and 35 years for house loans. Offers for pre-approved personal loans have also been prohibited.

Abdul Fattah was also unconcerned about any possible hike of interest rate as a result of their request today, trusting its wage garnishing system to reject those who cannot afford their loans.

Currently, the maximum monthly loan repayment that can be paid through ANGKASA cannot exceed 60 per cent of a civil servants’ monthly wage.

The groups also insisted that it is now necessary for most low-earning civil servants to take personal loans since they need the additional funds to pay for their houses, on top of any housing loan they can get.

Although non-banking financial institutions (NBFIs) and development financial institutions (DFIs) only account for 12 per cent of Malaysia’s total household credit, they are responsible for 57 per cent of personal financing credit, a figure that has risen significantly.

The comparative ease of obtaining personal loans has increased the percentage of personal financing over household debt from 16 per cent in 2011 to 17 per cent last year.

In recent months, economists stressed the need for stricter supervision on NBFIs that issue personal loans primarily to civil servants, voicing concern about the vulnerability of low-income households to economic shocks.

Bank Negara Malaysia (BNM) reported in March that 80 per cent of personal loans from NBFIs, which are not supervised by the central bank, goes to government employees with household incomes of less than RM3,000 a month.

The NBFIs include, among others, Bank Rakyat Sdn Bhd and Malaysia Building Society Bhd (MBSB), and development financial institutions (DFIs) such as Agrobank, SME Bank and Lembaga Tabung Haji.

Late last month, the central bank announced that Malaysia’s household debt-to-GDP ratio jumped by 3.3 per cent in the second quarter of the year, up from 82.9 per cent in the first quarter.

But BNM did not sound any warning bells and Zeti insisted at the time that measures have already been put in place to promote sound and sustainable borrowings.

Zeti also explained that BNM will embark on road shows to further educate the public that Malaysia’s household debt-to-GDP ratio rose from 75.8 per cent in 2010 to 76.6 per cent in 2011, and to 80.5 per cent in 2012, which is one of the highest in the region.