Latest New Measures by Bank Negara to Reduce Household Debt

Recently there was much speculation about Bank Negara considering to ban DIBS or Developer Interest Bearing Scheme from new property launches. DIBS is essentially a scheme from property developer whereby upon booking any of their properties, the buyer need not service the interests on progressive loan disbursed from the bank during the construction period of the property up to completion.  The developer will instead service the interests. This gives buyer a sense of "feel good" factor as the buyer need not fork out any more money besides the initial downpayment until property is completed.

So as we were expecting BNM to do something about DIBS, it didn't happen, or shall i say, hasn't happened. Instead, BNM introduced other new measures late last Friday and the effect was immediate.

The new measures are as follows:

1. revise maximum tenure for any property loan (residential and non-residential) to maximum 35 years only. (down from previous 40 to 45 years for residential loan)
2. limit maximum tenure for personal loan to 10 means (previous could be as high as 25 years)
3. no more pre-approved credit card personal loan. That means, the banks and credit card agencies can no longer offer anyone a pre-approved credit card or personal loan over the phone from now on as they normally did previously, something which i personally find very annoying, as the message often delivered by these agencies were a false sense of easy money and "low" interest rates when in fact very often it wasn't.  

The staggering statistics is that our latest household debt to GDP has ballooned to 83%, apparently the highest in Asia! The main culprit appears to be the extraordinary growth of personal loan, and to a lesser degree, property loans. 

Previously, a number of Malaysia's non-bank lending corporations such as MBSB and Bank Rakyat were able to perform the role of lending without coming under the purview of Bank Negara, and a number of these non-bank entities have achieved exponential growth for the past few years due to the expansion of personal loan, mainly to the civil servants, through direct deduction of the monthly installment from their payroll. The past practice of self-governance is no more as under the new Financial Services Act (FSA) introduced recently in place of BAFIA, these entities are now under the purview of Bank Negara, and Bank Negara has the right to audit their books as and when deems fit. 

As a whole, i believe the new measures are steps aimed at the right direction. From the property perspective, the reduction of tenure will most likely impact the younger generation (<35years old), but will not be significant, as the impact on loan installment between 35 years and 40 years tenure assuming a housing loan amount of RM500k is only about 5% increase in installment. 

Personally, I am expecting more cooling measures to come as the above are likely only the beginning. We shall wait and see.