Bank Negara Malaysia (BNM) has proposed abolishing flat rate interest for personal financing, including Buy Now Pay Later (BNPL) arrangements. In a draft exposure released on Monday, the central bank is seeking feedback on new requirements that would prohibit personal financing products where interest or profit charges are calculated using the flat rate method under the Rule of 78 method. 

Under the proposed rules, BNM plans to classify certain home financing arrangements as personal financing. This includes additional financing obtained beyond the existing loan amount when refinancing a home loan, further financing after a borrower has fully repaid their original home loan, and financing secured against a property that has no existing mortgage.

The draft rules also specify that, prior to granting a BNPL facility, financial service providers (FSPs) must assess the borrower’s ability to repay the loan without creating financial hardship. 

At a minimum, this assessment requires reviewing the borrower’s repayment history on any existing credit facilities. If a borrower has no credit history, the FSP should consider repayment records for other regular payments, such as utility or phone bills. Additionally, the draft rules prohibit offering BNPL products to consumers who have been declared bankrupt. 

BNM is also clarifying its expectations regarding the maximum tenure for personal financing products, which is currently set at ten years. The central bank is seeking views on the feasibility of reducing this maximum term and is requesting input on what the lowest appropriate threshold might be.

In other jurisdictions, such as Australia and Singapore, the maximum tenure for personal financing products is limited to seven years, which is shorter than the ten-year term currently allowed in Malaysia. This proposal is aimed at fostering more responsible lending practices.

BNM has also expressed concerns about the risks to financial stability arising from high household debt levels. As at the end of 2023, aggregate household debt in Malaysia stood at RM1.53 trillion, with 12.6% attributed to personal financing. Personal financing has also been identified as one of the leading contributors to bankruptcy, accounting for 46.26% of total bankruptcy cases in 2023.

Furthermore, as at the end of April 2024, 32.8% of loan facilities enrolled in the Agensi Kaunseling dan Pengurusan Kredit’s Debt Management Programme comprised personal financing products. 

Feedback on the draft exposure must be submitted electronically to BNM by 14 February 2025.

(Source: NST)

• TAGS:
• Bank Negara Malaysia
• Buy Now Pay Later
• Financial Service Providers
• Flat Rate Interests
• Interests
• Rule of 78