The Government is expected to adopt tighter regulations in the 2011 Budget to curb potential dangerous run-up in consumer credit card spending and speculative activities in the property market.

“We believe Bank Negara Malaysia (BNM) is focusing on tackling household debt in 2011 to promote healthy credit card spending,” said Kenanga Research.

In its 2011 “Wish List”, Kenanga said the central bank should consider imposing tighter borrowing limit for the property sector to avert potential over-leveraging on the household segment and speculations.

It said bank loans should be lowered to between 70 and 80 per cent value ratio for third mortgage, it said.

Bank Negara should also consider capping maximum of two mortgages for each borrower, it said, adding that such a rule would slow down housing price appreciation rate, going forward.

Should tighter borrowing rules be enforced in 2011, it would not have any impact on loan growth this year as borrowings are anticipated to remain strong till year-end, it said.

“But we are cautiously optimistic on business loans as businesses in the next six months may be negatively impacted by global economic turmoil and Malaysia''s economy is not immuned from moderating global growth,” it said.

The research house said it was cautious for the second half of this year due to healthy loan growth but increasing risk on slower growth in the business segment, namely manufacturing and exports.

"Profit margin squeeze is directly triggered by the wave of intensely- competitive pricing, moderate growth expectation and possibility of a slowdown on mortgages if 70 per cent to 80 per cent loan-to-value ratio (LVR) is implemented.

“We see the implementation of a blanket 70 per cent to 80 per cent LVR cap as a real challenge to the industry's loan growth next year and could put pressure on retail banks,” it said.

However, strong asset quality suggested lower credit charge-off, going forward, compensating net profit for the lower top line growth, it said.

As for credit cards, Kenanga said new measures should see tougher limits on the number of cards a person could hold and lower credit limit on each card.

Bank Negara should restrict a consumer to own only two credit cards from two banks of their choice and allow people with an annual income of above RM24,000 to own a credit card from the current minimum requirement of RM18,000.

The central bank should also reduce spending limit by 1.5 times their monthly salary (currently 2.5-3.0 times), set at the bank’s discretion for first-time applicants.

“In our view, stricter credit card rules are prudent and limit the risk of rising household non-performing loans. It will curb spending-spree cultures that have surfaced in certain segments of the population recently,” it added. — Bernama

SOURCE: Business Times