KUALA LUMPUR: Bank Muamalat Malaysia Bhd has lauded the proposal to issue moneylending licences to housing developers as it will enhance competition among financial providers, which will ultimately benefit consumers.
Chief executive officer Datuk Redza Shah Abdul Wahid said the proposal by Urban Wellbeing, Housing and Local Government Minister Tan Sri Noh Omar would benefit some markets that the banks were not involved in.
However, he said the idea needed to be carefully evaluated before implementation.
Last Thursday, Noh announced that developers could provide house buyers up to 100 per cent of housing loans and that licences would be issued by his ministry under the Moneylenders Act 1951 (Amendment 2011).
He said it was a win-win situation for developers and house buyers, adding that developers could gain short-term returns through the sale of houses and long-term yields through the repayment of loans, which could stretch up to 20 years.
The initiative is be carried out under the ministry and does not involve Bank Negara Malaysia.
Meanwhile, Paramount Corp Bhd group chief executive officer Jeffrey Chew said the move would unlikely see developers encroaching on banks’ mortgage business.
He said while these initiatives could bring some advantages, there were other challenges for developers. He said in the context of balance sheet requirement to fund these long-terms financing, it would have an impact on the gearing and liquidity.
“As developers, our balance sheet is generally tied up with substantial landbank that involves long gestation periods, and this can also be another significant burden to the developers,” said Chew in a statement.
He said the cost of setting up a proper credit evaluation framework, loan management and processing, risk monitoring and collection procedures could be a daunting task and required substantial effort and investment.
Under-investing would result in huge credit losses and expose developers to fraud risk and losses, he added.
Chew also pointed out that system investments for loan origination, loan management, risk management analysis and monitoring as well as debt collection were quite costly.
This included the cost of expert resources required to operate this processes and systems, he said.