Bank Negara stands firm on new rules

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THE new guidelines to secure loans to buy houses and cars, among others, will not be reviewed or adjusted, at least for now.

Bank Negara Malaysia, in a statement yesterday, maintained that the guidelines are meant to help individuals and households borrow within their means.

The statement was issued immediately after Bank Negara had met senior officials of automotive companies and industry bodies. They included those from Proton Holdings Bhd, Perusahaan Otomobil Kedua Sdn Bhd, DRB-HICOM Bhd, Malaysian Automotive Association (MAA), Proton Edar Dealers Association and Perodua Dealers Association.

The automotive industry claimed that new guidelines had affected vehicle sales following the implementation on Jan 1. MAA early this week said new vehicle sales in January had dropped 25 per cent or a whopping 13,833 units to 40,948 units, from 54,781 units in the same month in 2011. Industry players claimed that the stricter hire purchase processes had caused a high rejection rate for such loans.

Bank Negara, however, insisted that the guidelines did not hamper access to financing by borrowers who could afford to repay their loans. Nevertheless, the central bank said it would resolve “implementation issues” relating to the
guidelines, especially involving car loans, with financial institutions. The issues included documentation requirements for purposes of income verification.

“This will contribute towards more efficient procedures and processes for vehicle financing.”

Bank Negara reiterated that the main intent of the guidelines was to promote prudent, responsible and transparent retail financing practices. It was also to ensure that the household sector and credit market remain resilient.

Bank Negara had written to financial institutions to ensure that consumers with the ability and capacity to repay should continue to have access to such financing.

It noted that in the last five years, the proportion of vehicle financing over total loans to household sector had averaged about 20 per cent, the second highest after financing for residential properties. “While there has been some reduction in the total number of vehicle financing applications received between December 2011 and January 2012, due in part to the shorter working month, the approval rate for vehicle financing has remained stable at 54 per cent for the month of January 2012,” Bank Negara added.

Meanwhile, the central bank said household borrowing had been on a rising trend over the last 10 years, increasing at an annual rate of 12.5 per cent as of December 2011. Household debt to gross domestic product stands at 76.6 per cent.

Experiences of other countries have shown that excessive borrowings and rapid build-up in household indebtedness had an undesirable impact on the economy, it said. To ensure that the household sector does not become vulnerable to the financial system and economy, Bank Negara has put in place a comprehensive range of pre-emptive measures, including the issuance of the Guidelines on Responsible Financing.

Proton's logo is seen on a Proton Persona car at the Proton Edar Show room. Bank Negara Malaysia (BNM)'s new responsible Financing guideline, introduced in November last year, has severely damaged Proton Edar Dealers Association Malaysia's sales, with only 30% of applicants securing car loans in the first two months of the year. NSTP/Osman Adnan


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