The past few weeks have seen the issue of household debt being frequently discussed in every major daily. The statistics released by the Credit Counselling and Debt Management Agency (AKPK) regarding the reasons people found themselves in debt (based on their enrolment for the Debt Management Programme) triggered more discussion about why the situation was escalating at the rate it has.
According to AKPK's findings, the highest percentage (23%) belonged to those who were unable to practice prudent financial management. Meaning; many undertook loans they were unable to repay. The statistics implied that personal financing was easily obtainable and thus resulted in imprudent financial management.
In response to the overall problem of increasing household debt; Bank Negara Malaysia released a new set of guidelines on Friday (12 July) in hopes of alleviating the problem. The new guidelines: which will come into immediate effect: will limit housing loan tenures to 35 years; personal loan tenures to 10 years and the barring of pre-approved financial products.
Limiting loan tenures will no doubt reduce the total amount of interest paid by a borrower and pre-approved loans will no longer be given to applicants who otherwise will not qualify based on income. But shorter tenures also mean higher repayment amounts every month which will further add to the already escalating living costs in the country. For many, a reduction to 35 years may not seem like much but the impact may be felt more by young, first-time house buyers with limited incomes to whom every ringgit more to their monthly commitment counts.
No doubt, more stringent loan approval processes will bring down the number of loans approved and of course; the level of debt, but will such a move be merely superficial tinkering as opposed to being truly beneficial to the rakyat? As it is, burgeoning costs of living and escalating prices of houses and cars mean more people are forced to take out larger loans as salaries aren’t increasing in tandem. Tightening loan requirements may mean many will be unable to afford homes and cars or worse, may resort to illegal moneylenders.
In the press statement as reported by Bernama, Bank Negara Governor, Tan Sri Dr Zeti Akhtar Aziz said, "Our recent supervisory review of financial institutions' compliance with the guidelines are falling short of expectations, in a number of respects, resulting in lending decisions that are inconsistent with the obligation to ensure that financial products offered are affordable."
One cannot help but wonder if perhaps it would be more helpful to ensure that costs of living and having a home are affordable.