BNM Takes Action!

Categories:

Bank Negara Malaysia announced three further measures to promote a sound and sustainable household sector on 5th July 2013. The measures are:

  1. Maximum tenure of 10 years for financing extended for personal use;
  2. Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties;
  3. Prohibition on the offering of pre-approved personal financing products.

These measures take effect immediately but will not affect applications made earlier.

I understand that some people will be affected by these curbs as it may dent their lifestyle a bit (or a lot!). However, I must say that it is indeed a timely move by BNM. The reason is because to allow household debt to continue rising would be the equivalent of holding a time bomb in your hands. It is a matter of time before everything gets blown to bits! This is further compounded by the fact that a lot of people are not handling their finances well. Their answer, sadly and tragically, often time is to take on more debt!

Actually, the purpose of the exercise is to put a brake on household debts which has increased at a strong pace, averaging at an annual rate of 12% over the past five years. While this has been supported by positive income and employment conditions, there has also been a growing trend in the offering of financial products that are not in the long-term interest of consumers. This includes extended financing tenures of up to 45 years for house financing and 25 years for personal financing. While this may reduce the monthly repayments, in the long run, this increases the overall debt burden of households. Such practices encourage excessive debt accumulation by households and increase the vulnerability of this sector, which is obviously not good for everyone.

My friends, borrowing money is easy. Any Tom, Dick, Harry and his neighbour will be more than happy to lend you money. However, don’t forget that you have to repay the loan back plus interest – a lot of interest. Often time, you will have to slog for the next 10, 15, 20 and even 30 years just to pay back the loan.

Isn’t that living like a slave?