With household debts in Malaysia increasing at an annual average rate of 12 per cent over the last five years, introducing finance caps is considered to be in the best long-term interest of consumers. Previously, people were able to borrow money to buy Malaysian property for up to 45 years. While this reduced monthly repayments, it increases the debt burden and market instability.
The introduction of the new measures by the central bank supports section 31(1) of the Central Bank of Malaysia Act 2009. Caps will apply to all financial institutions regulated by Bank Negara, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Berhad and AEON Credit Service (M) Berhad. The scope of the regulations are hoped to encourage consistency in the industry.
Key credit providers will also be required to observe prudent debt service ratios in their credit assessment. This will ensure borrowers have sufficient financial buffers to protect them against rising costs and unexpected events. "Households who have the financial capacity to take on borrowings will continue to enjoy access to financing," the central bank said in a statement. "To enhance responsible debt management by households, Bank Negara Malaysia will intensify its efforts in financial education to all segments of society including young and first time borrowers from financial institutions."
The bank added that the framework for consumer protection will be strengthened through the Financial Services Act and Islamic Financial Services Act. It seems Malaysia has certainly learnt lessons from the property market crashes of Europe and the US, and investing in the country will no doubt be much safer in the long run.