Bankers' housing credit supporting documentation
Published on: Monday, April 11, 2016
Kota Kinabalu: Malayan Banking (Maybank), CIMB Group, Public Bank, RHB Bank, Hong Leong Bank and AmBank are the six largest banks in Malaysia in that order before others down the line that lend to 68 per cent of Malaysians who currently have debt, the highest proportion of all eight markets surveyed in Asia, and more than double the regional average of 33 per cent.Maybank head Datuk Abdul Farid Alias, who is also the chairman of the Association of Banks in Malaysia (ABM), said according to ABM records, the total rejection rate of housing loans for the banking industry was only 20.39 per cent in 2015.Hence, the Association of Banks in Malaysia (ABM) affirms that eligible first-time home buyers will be able to obtain financing.
ADVERTISEMENT
However, many property developers, speculators, flippers and bona fide sellers with their estate agents complained of much higher loan rejection rate.Year-to-date, Farid said the rejection rate for the industry stood at 20.6 per cent and this would likely be higher this year considering the slower economic growth.Commenting on some analysts' gloomy outlook for Malaysia, Farid said the management of asset quality in Malaysia was holding up, attributed to Bank Negara Malaysia's responsible guidelines."The business of our member banks is in the main lending or extending credit.
ADVERTISEMENT
There is no intention whatsoever to make lending more difficult, particularly for first-time home buyers," he said clarifying a recent report on banks being "overly cautious" on mortgage loans for first-time home buyers."Customers must fully and accurately disclose all material information with regard to their financial position when applying for a home loan. In conducting affordability assessments, commercial banks take into account the applicant's income after statutory deductions, expenditure on necessities and all existing debt obligations from banks and non-bank lenders.
ADVERTISEMENT
"For self-employed applicants, banks will also take into account their proof of savings and regular income sources.First-time home buyers should work with their financiers when making the suitability and affordability assessments for any facility applied for to pave the way for more robust financial management on the part of the buyers. Commercial banks are committed to playing their role in this process." In a survey, the Manulife Investor Sentiment Index, based on interviews in Hong Kong, China, Taiwan, Japan, Singapore, Malaysia, the Philippines and Indonesia, states the average debt for Malaysians was RM56,000, which is nearly 10 times the average monthly personal income, mostly due to daily living expenses (60pc), with rental payments (44pc) and children's education (37pc)."Worryingly, much of the debt is long-term, with a quarter of those in debt not expecting to be able to pay it off for three years or more. "The high debt levels reflect poor financial management, failing to effectively manage their cash flow," it said.While 89pc of the surveyed Malaysian respondents track their expenses regularly, 44 per cent of investors spend 70 per cent or more of their monthly income every month, suggesting they are not acting on their tracking by curbing expenses.In Malaysia, banks have access to the Central Credit Reference Information System (CCRIS), which functions as a background check of a credit applicant. Members of the public can go to Bank Negara branch here for a free CCRIS check on their credit rating.Financial details of an applicant can be drawn from the system, such as the number and type of loans taken, credit cards, as well as banking payment history.Default payment on a loan or credit card bill will taint the applicant's credit rating.The bank may decide to reject the loan as it believes that the applicant is a poor paymaster and has difficulties financing the loans, based on recent records.Besides CCRIS, a Credit information provider CTOS Data Systems Sdn Bhd (CTOS) report collates information from various sources, such as National Registration Department, Registrar of Societies, Companies Commission of Malaysia, Malaysia Insolvency Department, publications of legal proceedings and notices in newspapers and government gazettes, as well as subscribers' contributions of litigation records.A CTOS Self-Check Report contains extensive records of a subscriber's credit history, users can also check if their personal details are being abused in identity theft or fraud cases.CTOS is also providing reason codes for applications for loan that get rejected to explain why a loan is rejected like a credit applicant has taken too much credit, asking for a lot of credit in recent months, or bad payment history. CTOS does not provide opinions or recommendations to financial institutions to approve or reject a loan. Each financial institution has its own internal credit approval policies, and loans are approved based on multiple factors.Some of these factors could vary from purpose of loan, collateral offered, borrowings and credit history, lenders' policies and willingness to take risk, as well as source of repayment, which includes disposable income and ability to repay loan.CTOS is currently working on offering additional solutions to cater to credit healthy clients and red zone clients.Credit-healthy clients are clients with good to excellent CTOS scores, while red-zone clients are clients with low CTOS scores.CTOS is also in the product development stage to ascertain credit worthiness of thin-file clients.Thin-file clients are those who do not have credit history, or clients who are new to the working force.CTOS is planning to integrate other information like mobile phone bill payments and utility payments to the CTOS Score, as these are good indicators of future credit behaviour.For the red-zone clients, CTOS aims to further expand on its advisory services on credit repair or rehabilitation.CTOS is backed by FICO, whose score is widely used in consumer lending in the United States, as a measure of consumer credit risk."What is important is for such buyers to recognise the need to make sound decisions of their own affordability appropriate to their financial circumstances."Datuk Abdul Farid Alias dismissed claims by housing developers that more than 50 per cent of affordable housing loan applications by first-time home buyers were rejected by banks due to stringent mortgage lending conditions.Out of the 456,000 applications received by banks in Malaysia last year, only 93,000 faced rejections."For loans where the principal amount was less than RM500,000, the rejection by the industry was 19 per cent; for loans between RM500,000 and RM1 million the rejection was 20.71 per cent. There were some mentioning 60 per cent but this is the data that I have for the overall industry," Farid said.He also disclosed that the rejection rate for loans between RM1 million and RM3 million was 25 per cent while that for more than RM3 million was 36 per cent.The top reasons for rejections were borrowers exceeding their debt ratio, having adverse credit history, and failure of credit score in terms of repayment capabilities at the respective banks.According to ABM, a bank usually finances up to 90 per cent of the property price for first-time home buyers. It also urged first-time buyers to consider applying for government schemes such as "Skim Rumah Pertamaku" for assistance in their property purchase.Special housing loan packages are being offered by commercial banks to suit the needs of first-time home buyers who are encouraged to shop around to find a financing package that best suits their needs.In addition, ABM said applications for such mortgage loans are decided on a case to case basis and there is no blanket approval system.Members of the public who have enquiries or complaints related to housing loan matters may contact ABM at its ABMConnect hotline 1-300-88-9980, or email them at eABMConnect by logging on to its website www.abm.org.my."Our member banks, which have focus in the retail sector, have been participating in the government's schemes such as 'PR1MA' and 'Skim Rumah Pertamaku'. Member banks are continually reviewing their strategies and engaging with the authorities to boost home ownership in the country while reigning in household debt," ABM executive director Chuah Mei Lin said."The business of commercial banks is in the main lending or extending credit while adhering to their respective risk appetites and/or the guidelines set by the regulators. Consumers who are eligible will continue to be able to obtain financing. What is important is for all consumers to recognise the need to make sound decisions of their own affordability appropriate to their financial circumstances," she added.Developers called for Bank Negara Malaysia (BNM) to relax its regulations on banks in approving loans for eligible house buyers, especially first-time home buyers.BNM reiterated that it does not impose any lending limits under its guidelines on responsible financing.It said that its guidelines emphasises affordability assessments (based on the debt service ratio), which aims to ensure that borrowers will be able to repay any debt that they take out.BNM also said that the guidelines do not prescribe a debt service ratio but banks should be able to demonstrate that borrowers have adequate buffers to manage unexpected expenditures, a rise in borrowing costs or income shocks, without falling into financial hardship due to excessive debt burdens. As the financial sector evolves, banks have to change as well and become an all-encompassing service that can meet a wide range of needs, said an industry executive.Piercarlo Gera, senior managing director of Accenture Strategy, describes this new version of an age-old service institution as an "everyday bank", one that is "central to the everyday life of a customer.""It is a player that the customer should and could access more than once a day, which addresses his real-life needs."Stay up-to-date by following Daily Express’s Telegram channel.
Daily Express Malaysia
