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


Eric How, said...

Morning mate. I'm in banking & maybe I can help on this.
There are few package on "No Lock In" period, but the rate is a bit sad. This Package mainly for investor who purchase it during contruction period,then sell it when it completed. The penalty around 3%(Depend on package too)
Rate can be very HUGE def. depend on what source you buy from.
I mean for developer's purchase, mostly if they "push" for sales, they willing to pay some interest, cash rebate, legal fees....etc for you. That's why you can get cheap rate.
But if you purchase sub-sales (Second hand), rate normally is a bit sad.
Too many mirror T&C like rate, margin, loan size, log-in period, monthly commitment fees, first disbursement or full.....etc
Last. for me as a sad slave in banking. NO BEST LOAN PACKAGE in the market!!! ONLY LOAN THAT SUITS YOU MOST! You have to look details on the T&C. Rate itself is not everything!

fusion said...

Eric being an exbanker and a property investment now, commissions paid out also count in the cost of borrowing. Commission to who, staff, mortgage agent, lawyers. Commission coming from where? Other incidentals like credit card offerings, insurance take ups etc

Worse still if service is lousy, its quite a waste of time.

These are some of the woes.

graph cut said...

Totally agree with Dali idea. Bank Negara should reduce the lock in period to maximum 2 years only. This new rule will enable the house owners to refinance their loan more easily. All Malaysians will be very happy and benefited with this policy change.

Arn said...

Hear, hear Dali. You're right on the money. I happen to be a locked-in mortgage slave myself and it's frustrating not being able to take advantage of the lower rates. Extremely frustrated!

Samsung said...

Yes local banks are cartel so are the medical/health insurance.

Koko said...

I have a question to Bank Negara:-

Why Bank Rakyat imposed high interest rate for their personal loan when the risk of defaulted loan is very minimal?
When we took the loan from them, the loan must be recovered either by the borrower or guarantor (thru Angkasa), and the interest rate is same or higher with other bank while their risk is much higher than bank Rakyat??

I hope this blog can analysis this matter too, because we don't want when you use tag "RAKYAT", you think you can bluff the "RAKYAT".

see said...

Maybe its to help banks to recoup when they offer packages with teaser rates like 2% or BLR-1%, etc in first 2 or 3 years....gee banks also learning from "Taiko" USA how to package subprime loans.

On another note, think Bank Negara & Zeti has not been given enough credit for keeping prudence in the banking sector & economy over the years. Balance sheets today are strong providing some buffer, helping companies avoid mass layoffs.

Chee Meng said...

Morning Dali,

What's your opinion on this terms and conditions normally imposed by banks for housing loans:

"The Bank has the right to vary the pricing structure including the Prescribed Rate, to convert the Prescribed Rate of the Facilities from BLR to Cost of Funds or vice versa at the discretion of the bank....."

It seems rather unfair to borrowers as the bank can convert the prescribed rate from BLR to Cost of Funds. If the cost of funds increases due to the bank's own risky borrowing practice, why should the cost be transferred to existing borrowers especially those who paid on time regularly.

What is your opinion?

-From a first time loan applicant-