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More M'sians struggling with debt
Publication Date : 09-01-2014
The sombre-looking couple walked into an obscure government office above a shopping mall in the city centre recently.
They brought along a stack of papers - a litany of their woes. There were unpaid bills and legal letters from banks. Friends had told them they could seek help there.
For the last two years, the 50-year-old man, who wants to be known only as Malik, has struggled to pay off debt from seven credit cards.
A civil servant who earns 3,000 ringgit (US$914.50) monthly, Malik's debt has spiralled to about 100,000 ringgit, including interest on late payments.
"We just buy day-to-day items - groceries, petrol and car repairs, but since I don't earn enough to pay for the debt; we use one credit card loan to pay for the other," he told The Straits Times. "Before we knew it, we lost control of spending."
There are many like him. Every day, about 300 Malaysians seek help from the Credit Counselling and Debt Management Agency, a government agency under the Central Bank known by its Malay acronym AKPK.
For many, a visit to one of the agency's 11 offices around the country is a last-ditch attempt to avoid bankruptcy.
The agency negotiates with banks to convert credit card debt into term loans, reduce interest payments for home and car loans and prolong debt repayment periods to help debtors from falling into bankruptcy.
In 2012, 53 people a day were declared bankrupt in Malaysia. Last year, more than 60 a day were declared bankrupt up until September, the latest figures available.
Malaysia's household debt, at 83.5 per cent of gross domestic product, is already among the highest in the region. Malaysians rely heavily on borrowing to purchase homes and cars and for household spending.
And the cost of living is climbing. The government cut subsidies for fuel and sugar last year, and higher electricity tariffs started this month. A new goods and services tax starting next year will only add to the pressure of those already struggling to repay household debt, economists say.
The government, anxious to pare down its budget deficit - running for the last 15 years - is now mulling over whether to raise toll rates next.
There are already signs citizens are having trouble coping.
"We expect the number of delinquencies to rise, especially among young workers in the private sector that have access to excessive credit via credit cards and personal loans, but may not earn enough that it would be commensurate with their lifestyles," Dr Yeah Kim Leng, chief economist of RAM Holdings told The Straits Times.
"The question is, by how much, and that is the worrying part."
For now, economists say un-serviced loans are at a manageable level. But there are red flags.
Overdue credit card debt is up. The amount owed to banks for longer than six months to November last year was at 426.4 million ringgit, compared to 402 million ringgit in the corresponding period in 2012.
Consumers also have themselves to blame, Koid Swee Lian, the chief executive officer of AKPK said.
"In Malaysia, only about half of the credit card holders pay above the minimum required amount of 5 per cent of total owed to banks each month, whereas in Japan and Korea, it is 89 per cent and 87 per cent, respectively," she told The Straits Times.
Sometimes, unforeseen circumstances land people in debt.
A 26-year-old salesman who wants to be known only as Nas, said he earns 2,300 ringgit a month and spends two-thirds on rent, food and transport. He has no credit cards.
But when a recent shoulder operation from a motorcycle accident emptied his savings, he took a loan of 10,000 ringgit to pay hospital bills. Now he cannot make payments and he too ended up at the AKPK office. "People like us just don't earn enough," he said. "Even insurance is a luxury."
Over the years, the government has tried to keep debt levels down. In 2010, it imposed taxes on credit cards, cutting the number of cards in circulation. Banks around town have also become more stringent in approving home loans.
Malik said he thought of selling his house to repay his debts. But AKPK counsellors advised him to keep a roof over his family's heads.
The counsellors managed to strike a deal with banks to let him repay the debt over a period of 10 years. "From now on," he said. "No more paying for groceries with credit cards for me."
*US$1 = 3.28 ringgit