Wednesday, July 01, 2009
Got A Question For Bank Negara
Dear Madam Zeti,
There is a curious trend in bank lending which I am sure you are aware of, but is troubling to me. I am sure you are aware that all property loans (or almost all property loans) given out by Malaysian banks have a 5 year lock in period. During that 5 year period if you want to refinance your loan by the same bank or take it to be refinanced to another bank, you will be whacked with a 5% penalty on outstanding amount.
Say you bought a house in 2006 for RM500,000 with a RM400,000 loan with rate of 6%. Naturally with rates coming down over the last 12 months, you should refinance the balance, but you cannot.
Is this ruling fair to property owners? Is this rule sanctioned and encouraged by Bank Negara as it obviously benefits the banks at the expense of the borrowers. Is this to stop other banks from "stealing" loans from one another? If it is, then banks SHOULD allow for refinancing inhouse with no penalty - why should borrowers not have that choice?
As the country tries to deflect a recession, interest rates come down as a monetary tool by Bank Negara. What good is the tool, what good is the lower rates if a substantial portion of the loans are "locked in", unable to take advantage of the lower rates? This neutralises the lower interest rates policies as property loans make up a huge portion of most households' balance sheet.
Why are local banks having it so good? Why can't the public be beneficiaries of better and more open competition among the banks? A borrower will go to a bank because of the service it provides. Why does that "better service" automatically goes out the door the moment you sign off on the loan? Why can't a person switch to a lower cost option two or three years down the road? If a bank loses a loan to another bank, it means the other bank can compete more effectively - i.e. lower cost of funds.
The local banks are acting like a cartel... they all agree to do this so that all can enjoy supernormal profits, lock in profits, all to the detriment of the consumer. No need to watch The Sopranos, we have the local banks.
I can understand a window of a lock in period for the banks to recoup some marketing cost, but certainly not 5% penalty.
Bank Negara should:
a) reduce the lock in period from 5 years to 2 years
b) reduce the penalty from 5% to 2%
This is one of the many big reasons why Malaysian properties are sluggish.
p/s photos: JJ