KUALA LUMPUR, April 22 — Banks must lend responsibly to ensure the public do not take out loans beyond their means to repay, Bank Negara Malaysia said today as high property prices are forcing some buyers to purchase purely with credit.
BNM said such lenders must screen loan applicants to ensure they are able to meet the entirety of all their credit commitments.
“Bank Negara Malaysia requires that financial institutions practise responsible lending/financing that helps to ensure borrowers can afford, have the capacity to repay their loans without experiencing substantial hardship and ultimately own their houses,” the central bank and financial regulator told Malay Mail Online in a response earlier this week.
BNM was responding to a query on the reported practice of some Malaysians who are making property purchases entirely on credit — typically through a housing loan from banks coupled with credit card debts or personal loans.
Loan commitments cover all forms of credit, from credit card instalments to mortgages and with all financial institutions.
Beyond evaluating the financial standing of borrowers, BNM said financial institutions are also required to “observe prudent debt service ratios” when assessing the ability of borrowers to repay their loans, especially those in vulnerable groups.
“This is to ensure borrowers have sufficient financial buffers to cover living expenses and can protect themselves against rising costs and unexpected adverse events,” BNM said.
The debt service ratio is the proportion of loan repayments covering both the principal sum borrowed and interest charged against a borrower’s income.
BNM said it “continues to undertake surveillance and supervisory activities through thematic examinations to ensure that financial institutions properly implement the requirements of responsible financing”.
Earlier this month, Malay Mail Online reported real estate agents as saying that it was a common practice for young adults in their 20s or 30s to borrow from their parents or use credit cards to pay the downpayment for houses, instead of paying for the 10 per cent sum of the entire property price with cash.
According to the Counselling and Debt Management Agency’s (AKPK) fact sheet last January, the number of counselling cases it received increased from 4,368 cases in February 2014 to 6,581 cases in January this year.
More than half, or 56 per cent, of those who enrolled in AKPK’s debt management programme by the end of last year comprised young adults from the age of 20 to 40.
About 83 per cent of those who took part in the debt management programme have a combination of debt comprising housing loans, car loans and credit card debt, according to AKPK.
