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Only Two Credit Cards?‬
Malaysia Perspective | 16 November 2010
By:

By Xia Guowen

Here’s a quick survey: How many credit cards do you have sitting in your wallet right now? 3? 5? 8?

Here’s another couple of questions for you: Have you ever applied for a bank personal loan? What was the highest loan amount secured? RM8,000? RM10,000?

Don’t get me wrong, for I am not saying that you are addicted to credit cards, nor am I questioning your ability to repay your loans. However, if you are currently holding more than 5 credit cards, you should be concerned, because Bank Negara is exploring to limit the number of credit cards each person can have.

If you are used to taking bank loans for personal consumption, such as buying the latest and top-of-the-range mobile phone or taking a luxurious holiday abroad, do take note now because you may not get as much credit limits as before.

It is reported that Bank Negara intends to tighten credit line facilities to ensure that household debts do not expand excessively. However, a cursory analysis of the credit cards or personal loans bad debt data would reveal that these two areas do not show any signs of crisis for now.

According to figures released by Bank Negara, credit card bad debts by the end of July this year stands at RM515.4 million, accounting for a mere 1.75% of the overall bad debt within the banking system (RM29.4 billion); over the same period, personal loan bad debts amounted to RM1.1 billion, representing 3.83% of the total bad debts.

Since there is no crisis nor signs of one, what then is Bank Negara’s intention?

Indeed, no matter what your consumption patterns are, nor how frequent your transaction activities are, as long as you do not use your credit cards as a cash advancing tool, you can get by comfortably with just two credit cards.

Also, if your reasons for taking up personal loans are not purely for consumption (which temptation is difficult to resist because all the advertisements are encouraging you to do exactly so), there should not be a problem.

I presume Bank Negara’s intention to put a cap on credit cards is specifically targeted at a certain group of people, namely those with seven or eight or more cards, yet pays only the minimum amount payable each month and transfers the balance outstanding to another card once he has maxed out on one card.

For a macro point of view, such persons represent only a minority of the population, who will not impact the banking system as a whole nor will they erode our national reserves; however, from a micro-social point of view, as long as any one is sucked into this “card-feed-card” black hole, he is not only causing harm to himself but will inadvertently drag his friends and family into his financial quagmire, thereby triggering social problems.

What about personal loans? This instrument must be the brainchild of the banking industry born during economic slowdowns, designed to release the funds at hand that nobody wants to loan.

In its bid to attract takers, loan approval for such facilities is near instantaneous, taking mere hours before the applicant can draw on the amount. More importantly, such loans are different from ordinary business loans or housing loans in that they do not require any collateral; as long as you earn a fixed income, all it takes is a signature and the money is yours.

Therefore, to bankers, personal loans are high-risk products. Any hiccups, and the bank will not be able to recover even a cent.

For consumers, all you need to easily secure a RM4,000 personal loan is proof that you earn a monthly income of RM1,000, and the money is yours; not for investments nor business, but simply for non-productive consumer activities.

It is very unwise to borrow money just for consumption. Without appropriate controls, all it takes is a single spark to start a prairie fire.

Needless to say, Bank Negara’s proposal would be opposed by the banking industry, in particular the measure to limit the number of credit cards an individual can have. After all, this is a cash cow of the banking industry.


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