Don't over-borrow

Although only two restrictions have been placed on borrowing for the purchase of a third or more homes and credit card eligibility, it does not mean that there won't be more to come.

In fact, consumers should be vigilant as Bank Negara is believed to be putting more intensive supervision on certain aspects of the property and personal loans sectors.

For example, the 5:95 property loan scheme offered by certain companies falls under this category of supervision.

Under this arrangement that was implemented during the market doldrums, only 5% downpayment was required for the purchase of a property with the rest of the financing in the form of a bank loan.

There was talk that the 5:95 scheme was mainly extended to affluent housebuyers but the bulk of the repayments are coming onstream this year. Hence, the monitoring of these repayments as well as pockets of borrowing that are still available under this scheme.

Personal loans form 15% of the total loans portfolio but due to the higher borrowing rates, extra care and discipline are required to guard against over-borrowing.

The extension of credit by non-bank institutions is also being monitored amidst lessons gleaned from countries suffering from high indebtedness.

Credit schemes extended by cooperatives and cooperative banks are likely to be scrutinised for affordability on the part of the borrowers.

Covering all aspects of household loans, the upcoming guidelines on lending and affordability represent part of the internal controls that are put in place to monitor the situation.

Under this surveillance, over-lending to single borrowers is discouraged.

In fact, the entire credit scenario is being assessed via a holistic package of policies and measures that cover prudential, intensive supervision, standards on banking institutions and consumer education.

Household indebtedness, at 75.9% of Gross Domestic Product at the end of last year, may be on the increase but indications are that it has not become destabilising.

On the contrary, wealth accumulation remains healthy with liquid assets forming 64% of financial assets while delinquency levels remain low - the non-performing loans for credit cards is at 2%.

Nevertheless, it is not a time to be sanguine especially when high energy and commodity prices pose risks to the economy. - By Yap Leng Kuen (The Star)

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