The household borrowing has been on a rising trend over the last 10 years, increasing at an annual rate of 12% over the recent five years. Experiences of other countries have shown that excessive borrowing and rapid build-up in household indebtedness had undesirable impact on the economy. Bank Negara Malaysia (BNM) has put in place a comprehensive range of pre-emptive measures which includes the issuance of the Guideline on Responsible Financing to ensure that household sector does not become a source of vulnerability to the financial system and economy.
Some of the comprehensive and pre-emptive strategies to preserve household sector resilience introduced by BNM include:
- Prudential Measures
- Loan-to-value (LTV) ratio of 70% applied to 3rd housing loans onwards
- Increased risk-weights for housing loans with LTV less than 90% and personal financing with tenure of more than 5 years
- New credit card guidelines
- Higher income eligibility – from RM18,000 to RM24,000 per annum
- Limit the number of cards and credit limit for cardholders earning less than RM36,000 per annum
- POWER! programme by Agensi Kaunseling dan Pengurusan Kredit (AKPK)
- Targeted financial education for new borrowers and young adults aged between 18 to 30 years
- Guidelines on Responsible Finance
- Suitability and affordability assessment
- Disclosure and marketing practices
- Intensify surveillance and supervisory activities
The objectives of the Guidelines on Responsible Financing are:
- To inculcate responsible lending practices by financial institutions in their dealings with individual customers
- To promote responsible lending and borrowing behaviours to foster a healthy and sustainable credit market which in turn contributes to economic and financial stability
- To further strengthen the protection of consumers’ interests
Financial Institutions must ensure that customers are offered financing products that they can afford to repay in full throughout the financing tenure, without recourse to debt relief or substantial hardship.
|Debt service ratio (DSR) =||All debt repayment obligations (from banks and non-banks)|
|Income after statutory deductions (tax, EPF, SOCSO)|
Financial Institutions are also required to set a prudent level of DSR to prevent the customer from becoming over-indebted and allowing sufficient buffers for the customer’s daily and essential expenditures and contingencies. However, consumers who have the ability to repay shall remain to have access to financing facilities.
Please click here for Consumer Guide on Borrowing.