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Granting Lending Licences Add Risks With Rising Household Debt

According to Fitch Ratings, the decision to grant lending licences to property developers can add risks associated with rising household debt.

It added that the scheme is likely to encourage unregulated lending to households with weak financial profiles and undermine the strength of the financial system if not implemented prudently.

Lending by property developers will fall outside the purview of Bank Negara Malaysia, which means that it will not be subject to the same level of scrutiny, risk management and underwriting standards as lending by banks.

The scheme also runs counter to measures introduced by the central bank over the last 6 years to rein in the rise in household debt.

Minister of Urban Wellbeing, Housing and Local Government Tan Sri Noh Omar, had on September 8, announced that property developers can now apply to his ministry for a money lending licence for housing loans worth of up to 100 percent of a property’s value.

He said the move would provide an additional financing source for borrowers who may not qualify for a bank loan.