Malaysia Imposes Controls to Rein in ‘Excessive’ Household Debt

Malaysia’s central bank imposed a maximum tenure for mortgages and personal loans today, joining neighbor Singapore in implementing measures to limit risks stemming from rising household debt.

Household indebtedness levels have been increasing at a “strong” pace and averaged 12 percent per annum in the past five years, Bank Negara Malaysia said in a statement today. Banks and other credit providers can now provide mortgage financing of not more than 35 years from a previous tenure of as long as 45 years, it said.

“There has been a growing trend in the offering of financial products that are not in the long-term interest of consumers,” Bank Negara said. “Such practices encourage excessive debt accumulation by households and increase the vulnerability of this sector.”

The latest move adds to controls implemented since 2010 that included limiting the loan-to-value ratio for people taking out third mortgages, as the regulator sought to pre-empt speculative activities in the property market. Singapore’s central bank last month unveiled a new framework that required lenders to take a borrower’s total debt into consideration when granting property loans.

Bank Negara put a cap on the tenure for personal loans at 10 years and banned the offering of pre-approved personal financing products, according to the statement. All measures are effective immediately.

“The key credit providers are required to observe prudent debt service ratios in their credit assessment to ensure households have sufficient financial buffers to protect them against rising costs and unexpected adverse events,” Bank Negara said.

The Thai central bank said in February it will closely monitor risks stemming from high credit growth, particularly in consumer financing.