QUESTION 1

Banks cant say yes to all loan applications, otherwise they lose money, while borrowers
who are unable to repay the debt go bankrupt, Tan Sri Dato Azman Hashim, Chairman
of AmBank Group said, when asked to comment on the impact of the new lending
guidelines on consumer loans.
Briefly discuss current new lending guideline for consumer loan.
Literature review
Jami Hubbard-Solli who is the author of Responsible lending: An international landscape and the
article was established on November 2013 has present a picture of lending practices and policies
around the world from the consumer perspective, drawing on the experience and knowledge of
Consumers Internationals (CI) Member organizations. In developing the report, we asked
authors from CI Member organizations in 14 countries1 to choose an aspect of lending that is
particularly relevant to consumers in their country and provide a consumer perspective on
regulation and its implementation, as well as actual lending practices. CIs role was advisory
with regards to the content and general outline of each chapter, giving CI Member organizations
the space and opportunity to have their voice heard, and to elaborate on issues of their choice as
per importance for consumers in their countries. In addition to these contributions, we have
worked with our Members to develop a set of CI recommendations for responsible lending.
These recommendations set out the policies and practices that we believe are needed to ensure
that lending benefits consumers and minimizes the risk of abusive practices and overindebtedness.
Moreover, Yap Kon Lim from Consumers Affairs Division of Ministry of Domestic Trade and
Consumer Affairs Malaysia has wrote article about Consumer Credit Regulations in Malaysia. In
the article he discussed about there is a variety of consumer credit available in Malaysia provided
by various types of financial and other institutions. Some forms of consumer credit are subjected
to legislative controls while others may lie within a certain gray area or are totally not subjected
to any regulations at all. There are many problem areas in the field of consumer credit in this
country. The interests of consumers are not protected. In areas where no laws exist to regulate

the transaction, the consumer is at a very disadvantageous position. Where laws exist, the laws
have weaknesses that work to the detriment of consumers.
Discussion
Due to very poor economic status that currently affected Malaysia has leads to bankers create
new lending guideline for consumer loans. Tan Sri DatoAzman Hashim who is Chairman of
AmBank Group has advised that all bankers shouldnt provide loans for the all loan applicant, if
they give so they might lose the money.

Moreover, there has been clearly informed that

borrowers that unable to repay the debt will automatically will go bankrupt. This will leads the
borrowers that who think to apply loan will be automatically rejected once check his/her
eligibility for the loan.
There are some new current lending guidelines has been approved by Bank Negara Malaysia to
avoid some circumstances such as bankruptcy and many more. The guidelines cover all
consumer loan products including housing loans, personal loans, car loans, credit card
receivables and loans for the purchase of shares. The much tougher standards send a clear signal
to banks that they need to be more stringent on consumer lending.
While the loan growth potential will be slower, does not foresee the impact to be significant
given the existing excess liquidity condition, accommodative interest rate regime, strong capital
adequacy ratios of banks and historically low impaired assets. These changes would (also) not
have any major impact to banks' profitability, at least in the short run. We understand that most
banks have already implemented such new requirements and thus the impact could be minimal.
But with such prudent measures, the asset quality of banks could only continue to improve and
the profitability of banks will also probably continue to be supported by lower provisioning.
Property buyers will no longer have the option to take loans for longer than 35 years. Anyone
taking a personal loan can now only do so for a period of up to 10 years. These are new rules set
by Bank Negara with the aim of helping to reduce household debt in the country. Bank Negara is
acting because Malaysias household-debt-to-Gross Domestic Product (GDP) ratio is a high
83%. It is the highest in emerging Asia. All these institutions will also need to follow responsible
lending limits. New borrowers, especially those with lower incomes, can only take on debt
amounting to 60% of their monthly take home pay.

The new Reference Rate Framework aims to provide a more transparent reference rate to enable
better decision by consumers in making choices among the many loan products offered by
financial institutions. The new reference rate will also better reflect changes in cost arising from
monetary policy and market funding conditions, while encouraging greater discipline and
efficiency among financial institutions in the pricing of retail financing products.
The shift to the new Reference Rate Framework should have no impact on the effective lending
rates charged to retail borrowers which are determined by various factors, including a financial
institutions assessment of a borrowers credit standing, market funding rates and competitive
considerations. It is also important to note that the changes do not represent a change in the
Banks monetary policy stance.
Banking institutions must ensure that the lending rates charged are reasonable, reflective of the
risks assumed and not excessive. Any revision to the spread above the reference rate during the
duration of the credit facility must only be made to reflect changes in risk profile or the
creditworthiness of the borrower. Banking institutions are not permitted to adjust the spread
upwards to compensate for rising cost of funds, inefficiencies in funding management or increase
in non-performing loans.
Therefore, prospective loan borrower will be assessed based on net income basis (instead of
gross income) after deducting statutory deductions for tax and EPF and all other debt obligations
(e.g. car loan, other housing loan, credit cards) which analyzing the level of commitments as well
was effective from 1 Jan 2012. This is to avoid frequency of borrowing which means customers
who are frequent borrowers establish a reputation which directly impacts on their ability to
secure debt at advantageous terms.
Furthermore, Bank Negara Malaysia has been established that maximum car loan period should
not exceeding 9 years which was effective from 18 Nov 2011. On the maximum car loan period,
it is not expected to have a significant impact to many potential car buyers are currently there is
only 2 banks offering car loan more than 9 years and approximately 98% car loans are within 9
years. Banks will see slower loan growth ahead as they move to tighten consumer lending

practices from next year, say analysts, adding that competition for quality customers is set to
intensify.
Lastly, sometimes creditors prefer large loans because the administrative costs decrease
proportionately to the size of the loan. However, legal and practical limitations recognize the
need to spread the risk either by making a larger number of loans, or by having other lenders
participate. Therefore, creditors seek borrowers whose earning power exceeds the demands of
the payment schedule. The size of the debt is necessarily limited by the available resources.
Creditors prefer to maintain a safe ratio of debt to capital.

References
http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press_all&ac=2976
http://www.bankinginfo.com.my/04_help_and_advice/0403_announcements/announcements2.ph
p?intPrefLangID=1&&intArticleID=127
http://www.bnm.gov.my/documents/2012/factsheet_20120224_en.pdf
http://www.consumersinternational.org/media/1412472/ciresponsiblelending_finalreport_06-1113.pdf
https://www.cgap.org/sites/default/files/CGAP-Consumer-Protection-Policy-Diagnostic-ReportMalaysia-2009.pdf