FM: Our household debts are down… Start lending more please.

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I personally think Bank Negara Malaysia (BNM)’s responsible lending guidelines is an appropriate pre-emptive measure against excessive (greed) or inappropriate lending (everyone gets approval). Remember that 2008 Sub-Prime mortgage crisis? Let’s not have that here in Malaysia yeah. Now, with regards to responsible lending however, it does not mean that banks should only approve the ‘surely won’t default’ type of borrowers. As they say, when someone really needs money, the banks may not lend. However for someone who’s rich enough, the banks want this person to take loans from them.

Remember the ASEAN Financial crisis in 1997? In 1998, the Non-Performing Loan was as follows for selected countries. Non-performing loan (NPL) ratios of 50.1% for Thailand (end of January 1999), 25% for Indonesia (April 1998), 14.6% for Malaysia (December 1998), and 7.4% for South Korea (December 1998). Source: The Japan Research Institute When banks have such a high NPL, their appetite to lend diminished totally. That was why Danaharta was formed (read here for more details on Danaharta) and it took over all these NPLs so that the banks could function normally again. Let’s remember that NPL need not be NPL forever because many businesses could restructure and could continue operating and after sometime could start servicing their loans again.

As for Malaysian household debts vs our GDP, we could see that it has moderated further and is now at 83% versus the GDP. I know this remains high but I think the number must also be seen from whether the economy is healthy or are we in trouble. The reason I say so? Well… Australia’s at 120% vs GDP. UK’s at 94% vs GDP. USA’s at 76% vs GDP. All these countries are still rated under Investment Grade despite their numbers which are either much higher, higher and close to ours. Okay, what happens when our household debts are lower? It’s time for the banks to be more supportive of the economic growth. Here’s what our Finance Minister is saying.

Article in edgeprop.my . Finance Minister Lim Guan Eng wants banks to provide greater access to financing to first-time homebuyers, as well as to small and medium enterprises (SMEs) considering the fact that the country’s household debt as a ratio to gross domestic product (GDP) has fallen to 83% in 2018 from 83.8% in 2017. He said “Household debt on average is sufficiently backed by assets. According to statistics from Bank Negara Malaysia (BNM), the level of household financial assets is 2.1 times of household debt. This shows that households on average hold more assets than they hold debt, giving them the necessary buffer to face any financing contingencies.”

He highlighted, “The government has also requested BNM to remind all banks that business borrowers who are not facing loan defaults, but wish to improve their cash flow by restructuring and rescheduling (R&R) their loans for a longer tenure, should not have such R&R loans classified as non-performing loans.” He added that higher consumer confidence is reflected in the rise in retail sales by 6.3% to RM41.6 billion in April 2019 from RM39.1 billion a year ago based on data from the Department Of Statistics Malaysia. For the full article with more details, read here. Article in edgeprop.my .

Let’s think a little. Should borrowers try to stretch to their limit and hopes the bank approve their loan application or should borrowers change their ‘acceptability’ to buy based on need instead? Remember that sound advice? If we could afford a RM100,000 car, we should buy a RM80,000 car instead. Or if we could afford a RM800,000 condo, why not buy a little further and get a RM500,000 home instead? There are many more things that the households could do to reduce their expenses, upgrade their financial standing and well, get that loan approved. All sides win, really. Car sales continues to be vibrant, property prices do not get pushed up so fast due to huge demand for certain areas and banks do not need to lend to riskier borrowers. Happy understanding.

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