Verging on to Bankruptcy

Apathy and Punishment

This article in today's (21 Feb 2014) edition of the online Malay Mail is truly disturbing.

Just like in the earlier article I posted on galloping bankruptcy cases in Malaysia, this article adds further information that shows us that the problem could get worse in 2014.

I have edited the article.

" Dave, a legal adviser aged 27 recounts that poor judgment and financial mismanagement is part of the reason he is heavily in debt.  Roughly half his monthly take-home pay goes towards repaying a RM 48,000 study loan, a RM 70,000 car loan and RM 5,000 in credit card debt.

Faced with higher prices for everything from petrol through electricity as the government drastically quickens the roll-back of major subsidies, many Malaysians debtors are not expecting things to get any better. 

It's  bite the bullet time for many living just on the verge of more impending debt.

Low interest rates and cheap credit has fueled a spending boom that has helped the Malaysian economy grow but the fall-out is that it has also left many Malaysians struggling with large monthly debt repayments.

Bank Negara (BNM) data shows that household borrowing is shockingly above 80 per cent of the country’s total economic production or Gross Domestic Product (GDP).

It also shows that the number of individual bankruptcies have been rising steadily every year.

In 2013, personal bankruptcies reached 21,984; that’s roughly 60 cases each day.

Even before the government started cutting subsidies because incomes are not increasing, households were already using up a large portion of their incomes to repay loans for things such as houses and even weddings.

The time has come. Back against the wall, many households just cannot afford to cut back further on their basic needs. Many will likely sink into greater debt just to fund basic needs such as food, healthcare and education for their children.

Standard & Poor’s recent report said that Malaysia’s households could land in a tight spot because they have borrowed heavily even though their incomes are modest.

'People earning RM 3000 or less each month have taken on debt that outweighs their incomes,' it said.

"These borrowers constitute about 16 per cent of the banking system’s loans and are particularly vulnerable to inflation,” it added.

The official rate of inflation in Malaysia reached 3.2 per cent in December, the highest in over two years.

Some economists predict that inflation could reach 4.0 per cent later this year as the effects of higher fuel and electricity trickle through the economy.

As the inflation rate rises BNM will be under pressure to elevate interest rates which in turn  could  push up borrowers’ monthly debt repayments even further.

“Borrowers who have difficulty keeping up with their loan instalment payments are encouraged to approach their credit providers or AKPK to restructure or reschedule their loans so that they can continue to service them,” said Koid Swee Lian, the CEO of the government’s debt counselling agency AKPK.

“Ignoring mounting debts and ‘running’ away from lenders would not solve debt problems but would lead to bankruptcy eventually,” she added.

The number of people applying for AKPK’s free debt management programme rose to 16,769 in 2013 from 16,110 the previous year. More may just come by very soon to obtain counsel.

According to AKPK, the top reasons for going into heavy debt are poor financial planning at 22.8 per cent, high medical expenses at 18.1 per cent, failure or slowdown in businesses and credit card debts at 15.3 per cent and 11.1 per cent respectively.

An overwhelming 82.9 per cent who needed the debt agency’s help had a combination of credit card debts, housing and car loans.

So it looks like the new year is not happy nor prosperous for many after all.