Tuesday, September 27, 2011

The Credit Card Conundrum

It's been a really hectic period for me but I managed to squeeze out a few minutes to give some thoughts on Jimmy's posts about credit card debt here and here.

Jimmy said that:
If they dont have a CC then how can they over-spend? The problem is easy credit cards being made available to everyone, even those that might not be able to repay. Banks are at fault plus our Bank Negara and Finance Ministry (for not regulating the banks more carefully).
There are many other ways to get in debt. Even more severe than credit card debt is the personal loan. We can just refer to our resident banker, Ilhamuddin. There are tonnes of people who actually take out personal loans to pay off their credit card debt due to the lower interest rate (usually around 10%). However, this tends to be misused as well.

On top of that, there is this thing called the Civil Servants Salary Deduction Scheme. This is the ultimate killer. The salary deduction scheme is handled by MBSB, which is neither a bank nor a financial institution, and is thus not under the "purview" of Bank Negara. These loans are not for housing or car loans. They are personal loans and are given out freely like there is no tomorrow without any form of collateral. This is because the installments are deducted out of the salary of the borrower. Because of this, the loans are not recorded under the CCRIS, which means that it cannot be traced by the banks. So the banks will continue to lend money to these jokers despite the fact that they have already borrowed up to their necks. In some cases, MBSB allows borrowing up to 70% of their monthly income. This is extremely scary. How can anyone live on only 30% of their monthly income? On top of this, they need to pay for their housing and car loans, which leaves them with nothing.

So, eventually, since they cannot stop MBSB from deducting their salary, they default on their car loans, housing loans, and credit card bills. Much of these personal loans are used to buy silly luxury items like big-ass flat screen TVs, new refrigerators, new washing machines, new sofas, LV handbags, you name it.

This is a giant loophole in our banking system as Bank Negara is unable to monitor this. If you think the civil service is only a small part of the workforce, think again. Government servants account for more than 10% of Malaysia's labour force. That is by no means small. This is indeed very scary for Malaysia, not just for borrowers only. I'd hate to know what can happen if the banks fail.

If you think that banks won't fail, just ask yourself this: Did you think that the Lehman Brothers would go bust in September 2008? If suddenly, house prices plunge through the ground, believe me, no one is going to pay their housing loans and the banks will be left with no liquidity to operate. That's how banks fail.


  1. Of course there are many ways to get into debt besides the one you mentioned, I can think of "alongs" :)

    MBSB is refer to Malaysian Building Society? If so, how the heck this salary deduction ended up in their lap????

    GOM will never let any local bank fail. History has proven it. Even if it means using taxpayers money to bail them out.

  2. Yes, MBSB = Malaysian Building Society Bhd

    They are government-linked. So of course they get all the good stuff. MBSB is actually assisted by ANGKASA, which is the umbrella for all the cooperatives in Malaysia.

    Basically, MBSB sends the info of their borrowers to ANGKASA, ANGKASA receives money directly from the Ministry of Finance, and pays MBSB. That is the rough flow of things.

    As for how to get a loan from MBSB? Easy!!


    It is worse than I thought. You can get up to 80% of your gross income. Seriously, there is no control.

  3. Looks MBSB is acting like a bank. I wondor what our Zeti have to say if pressed about it.

  4. The official stand for this is that they are aware of the situation and are working to reduce this problem. What do you expect she will say? Hahaha...

    This is just MBSB. I am not even bringing in the other cooperatives yet. Many of those are not listed, so I have no access to those information. MBSB is listed. An educated intelligent person can tell that there are problems with their business model just from reading their annual reports.

  5. Zeti just another toe-the-line bureaucrat. Surprised that she got some kind of international award. Seriously?