Stringent lending guidelines rein in growth in consumer loans
In a bid to rein in household debt, the government imposed more stringent lending guidelines in 2012. Coupled with marginally lower real GDP growth, gross lending and outstanding growth for overall consumer credit resulted in a slowdown in 2013. With other lending such as housing loans under their names, applying for auto loans became more difficult for borrowers despite earning a decent income. With the tighter credit card regulations imposed by the central bank, some consumers turned to personal loans for big ticket purchases. However, the growth in gross lending of personal loans is not significantly high as banks are still cautious when it comes to approving loans for borrowers.
Mixed reaction for mortgage loans due to lending guidelines and schemes
As a result of the tighter lending guidelines, mortgages for affordable housing are to be adversely impacted as borrowers are usually from the low to middle-income groups who are not affluent. In addition, job seekers who are looking to purchase their new homes might encounter difficulty in securing housing loans amid the strict regulations. The lending guidelines also lengthened the entire housing loan process due to a greater submission of documents that are required for the loan approval. However, this sends a mixed signal to borrowers as there are introductions of more schemes such as My First Home Scheme which provide people with the opportunity to own their first residential properties. In addition, the individual income limit will be increased from RM3,000 to RM5,000 from January 2013, while the requirements for a saving record of three month’s instalment and minimum employment of six months will be abolished to benefit more first-time buyers.
Competition among local and foreign lenders intensifies
Fierce competition between the foreign banks and local financial institutions is evident when it comes to card lending. Foreign banks such as Citibank, United Overseas Bank and Standard Chartered Bank have enhanced the attractiveness of their lending rates and marketing promotional activities in order to compete head on with local banks such as CIMB, Malayan Bank and Hong Leong Bank. However, local banks and non-banks companies have a competitive edge over foreign banks, particularly in consumer loans such as auto loans and other personal loans. It can be attributed to the strong brand recognition and trust from the loyal customers of these local financial institutions.
Non-performing loans witness a slowdown in value share
With the successful implementation of the lending guidelines by Bank Negara Malaysia, non-performing loans for outstanding balance registered a decline in 2013. In addition, it is an indication that the lending guidelines did not have an adverse impact on the quality of the existing card and non-card lending at the end of the review period. Most of the financial institutions posted improvement in their non-performing loans which is the result of good financial management and stricter loan approval in order to ensure that the borrowers have the capability to repay their loans.
Slower outstanding balance growth expected over forecast period
Over the forecast period, the household debt is expected to be controlled with outstanding balance of consumer credit registering a slower constant value CAGR. Through the education on better financial management, coupled with the strict lending guidelines, consumers are expected to have better knowledge of the risk and commitments needed to undertake loans over the forecast period. In order to vie for a bigger share in the consumer loans, banks and other financial institutions are expected to step up their marketing campaigns and introduce consumer loans with attractive lending rates over the forecast period.
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