KUALA LUMPUR: Moody’s Investors Service expects Bank Negara’s new measures on lending criteria to be credit positive for the country’s three largest local banks by total assets.
It said with their dominant branch networks, the banks – Malayan Banking Bhd, Public Bank Bhd and CIMB Bank – would continue to have scale advantages that would help them price loans more competitively than their smaller peers.
The new measures introduced by the central bank reduces to 10 years, from 25, the maximum tenure for personal loans, while reducing to 35 years from 45 that for residential and non-residential property loans.
There is also a prohibition on credit providers offering pre-approved personal loans.
“The shorter loan tenures would improve the quality of bank borrowers.
“Given that our rated local banks generally applied debt service ratios of 50%-70%, the higher periodic payments associated with a shorter loan tenure would directly reduce the amount that banks lend to highly leveraged borrowers,” Moody’s said in a statement.
The credit rating agency said the tighter credit requirements had now increased the qualifying criteria for borrowers to secure new financing.
This is particularly for those with outstanding debt obligations and little cushion in their debt-servicing capacities, as well as new borrowers with weak credit profiles.
It said the new measures would help slow excessive debt accumulation by households and reduce the household sector’s vulnerability to higher interest rates.
Household debts in Malaysia increased to 80.5% in 2012 from 60.4% in 2008.
“Importantly, the new measures would harmonise lending discipline among Malaysia’s credit providers.
“This development is critical to limiting credit access to financially weak borrowers, particularly in the current context of low interest rates and intense competition among credit providers in the consumer segment,” Moody’s said. — Bernama
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