MBSB: The Amazing Credit Expansion to Civil Servants- Part 1A

This post is to correct some numbers that I presented in the previous post on MBSB. Yes, one deleted post and another post to correct another mistake in a week did no good to the credibility of this blog. But, if I did not correct this mistake and misinformation, it will make this blog similar to the newspaper that I always make fun of, a newspaper that "copy" their tagline from the Korea Tourism Organization. 

Fellow blogger hishamh of econsmalaysia lead me to a report known as "The Financial Stability and Payment Systems Report" published by BNM. I did not know that this report actually existed. Shows how little I know. Hat tip to hishamh for the report :-) In it, it shows the breakdown of Bank Rakyat and BSN consumer credits figure. Sigh..it would have save me the hassle of downloading all the banks annual report if I knew this report existed.The Bank Rakyat figure is further broken down to member and non-member. I subsequently found out that, cooperatives only can lend from the member portion. So, I mistakenly added RM17b to the Bank Rakyat figure. So, here's the figure without the RM17b.

Gross Loan Ammended

Average Loan Corrected

So, the average loan per civil servant stands at RM25.7k. This is based on the assumption that all personal loans are extended to civil servants, which is not that far from reality because most of their products is targeted at them due to their relatively lower risks.

For a system basis, the report also provide the figure of total consumer credit provided by the Development Financial Institutions (DFIs) i.e. your Bank Rakyat and BSN and etc. It includes loans that are extended to non-civil servants but do not include loans extended by MBSB as it is not a DFI. Here's the table:

DFI Consumption Credit

The amount nearly triple from RM14.7b to RM42.8b. The report have another chart on the contributors of household debts.

As you can see from the chart, personal loans have been the second largest contributor to the growth of household debts. This is disproportion to the size of the personal loan component relative to the size of total household debt. I would like to add another chart that shows how the personal loan component is getting larger over time, but, need to respect BNM copyright. Cannot steal too many charts from them. If you are interested, please download the report here.

Luckily BNM is aware of the problem and are taking pre-emptive measures to tackle the risks. Here's what they say:

While a large fraction of household borrowings is collateralised (45.3% was for the purchase of residential properties), personal financing has increased significantly in recent periods. In 2010, outstanding personal financing grew by 17.5% to account for 14.6% of household debt (2006: 9.6%). Development financial institutions (DFIs), cooperatives and building societies accounted for the bulk of this growth, with almost 80% granted under salary deduction chemes. Given the salary deduction feature, credit assessments by these institutions are mostly limited to a reliance on incomplete computations of debt-servicing ratios, which are applied for the purpose of qualifying for the salary deduction facility. The absence of robust credit and affordability assessments will result in households being more at risk of becoming over-indebted, while the risk of defaulting on financing obligations, including those obtained from other banking institutions, will be higher for borrowers who have over-borrowed.

They also said that:

The enforcement of responsible lending practices will act to counter overly aggressive behaviours by financial institutions. Nonetheless, the growing influence and significance of non-bank lenders will need to be managed to avoid excessive build-up of leverage among certain borrower segments. 

 and;

The Bank will also closely monitor the growing presence of, and coordinate with relevant agencies responsible for non-bank financiers, to ensure that their activities do not substantially increase household leverage; 

This means that the crazy growth rate of MBSB Personal loans (at times >100% p.a.) will be over. MBSB need to find other growth avenue rather than preying on civil servants to take up enormous amount of debt beyond their capacity. 

P.S.: Someone from some forum posted the link to this blog post. He/she also said that he sold his position in MBSB due to the strong run up. Please read my blog post properly, I did not say anything bad about MBSB as of now. I have not even talked about MBSB in detail yet. I did not say that their loans will go bad. In fact, I said that their loans is very hard to go bad. When MBSB get the salary before the borrower did, how can the loan go bad?  I am more concern about the over indebtedness of our civil servants. When you are deep in debt, you tend to do some silly things for money, things that may make you compromise your ethical standards.