BNM Dispels Alleged Link Between OPR Hike And Rise In Bankruptcies
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(Image: The Malaysian Reserve)

Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus has stepped forth to dispel the alleged link between the increase in overnight policy rate (OPR) and the rise in bankruptcies in the country. This came following claims by the Malaysian Association of Borrowers and Consumers Solution that more borrowers may go bankrupt if the OPR continues to increase.

In a rare open letter addressed to editors and the public, Tan Sri Nor Shamsiah noted that the number of individual bankruptcies in the country has actually been on a decline since 2016 – including when the OPR was increased in 2018. The number of bankruptcies had also continued to decrease between 2018 to April 2022. This is as indicated by data from seven domestic financial institutions, which accounted for 68% of the total banking system loans in Malaysia:

YearNumber of bankruptcy cases
20185,283
20193,948
20202,844
20211,884
January – April 2022515

Tan Sri Nor Shamsiah further highlighted that the number of youths (individuals under the age of 35) who went bankrupt also showed a similar downward trend, accounting for 14% of the total bankruptcy cases between January to May 2022. This is lower than the average number of youth bankruptcies recorded between 2017 to 2019, which stood at 24.9%.

(Image: Malaysian Department of Insolvency)

“In accordance with the principles of fair treatment of financial consumers and responsible financing practices issued by Bank Negara Malaysia, financial institutions are required to ensure that borrowers who have difficulty in repaying their loans are treated fairly and given due consideration before any bankruptcy action is taken,” Tan Sri Nor Shamsiah emphasised, adding that financial institutions will only resort to taking bankruptcy action after all other measures to recover the money loaned to the borrowers are exhausted.

Meanwhile, the governor encouraged borrowers who have difficulty in repaying their loans to contact their respective financial institutions instead of defaulting. They can then work with the banks to come up with suitable loan repayment packages, and avoid bankruptcy petitions from being filed against them. 

Tan Sri Nor Shamsiah also noted the success of such assistance, as borrowers who applied for them are gradually able to regain their ability to repay their loans. This is reflected in the loan repayment trend of the banking system, which improved in the first quarter of 2022 to an average of 92% of the pre-pandemic loan repayment level (first quarter of 2020).

(Image: Bank Negara Malaysia)

Aside from speaking to their banks, the governor said that borrowers may also consult the Credit Counseling and Management Agency (AKPK) to be considered under its Debt Management Programme (DMP). The programme can help the borrowers restructure their existing loans. This, in turn, helps prevent legal action, such as bankruptcy or property auction, from being taken against them. 

Earlier last week, the Malaysian Association of Borrowers and Consumers Solution had cautioned that as many as 32,000 borrowers may go bankrupt over the next two years if BNM continues to increase the OPR. It also remarked that further interest rate hikes may cause borrowers as young as 25 years old to go bankrupt as they may not be able to meet their financial obligations.

BNM had raised the OPR in May and July this year with a total increase of 50 basis points, bringing it from a record low of 1.75% to 2.25%. Several research and financial institutions also expect BNM to gradually increase the OPR to 3.00% by 2023

(Sources: BNM, The Edge Markets

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