Monday, October 3, 2011

MBSB: Salary Deduction Is Low Risk

You’ve got to be kidding me:

MBSB adopts best industry practices: CEO

PETALING JAYA: Malaysia Building Society Bhd (MBSB) adopts the best industry practices when evaluating the creditworthy of a government servant and does not “simply disburse personal loans based solely on salary deductions,” according to chief executive officer Datuk Ahmad Zaini Othman…

…In a statement he said: “MBSB made an impact in the industry in mid-2009 when it re-entered the market and provided Personal Financing-i to government servants at the lowest rate of 4.90% per annum.

“This was markedly lower than most rates then which were above 7.50%. It was also significantly lower than another source of financing which is credit card at between 13.5% and 17.5% per annum or its cash advance withdrawals at the maximum of 18%.”

“MBSB believes that the rate offered is the true reflection of the level of risks undertaken by MBSB as repayment is collected via salary deduction.”

4.90% for a non-collateralised personal loan – this is NOT industry best practice. There’s a reason why – even in this era of average lending rates below BLR – that banks charge over BLR for personal loans. And why credit cards attract such high interest rates. Credit risk is more than just the method of repayment or who the borrower works for, it’s also the actual capacity of the borrower to repay. Even microfinance institutions charge significantly higher.

I think the clock on this particular time-bomb is ticking.


  1. One is not likely to get sacked by govt thus payment stream is very secured.The only risk is as to who gets first bite of the borrower's income stream.Presumably,if it gets really bad MBSB will line up with other non-secureds?

  2. You're right, the payment stream is pretty secure. But the impact I worry about is on the incentive to borrow. By providing very cheap credit with few restrictions, the likelihood of borrowers' over-extending themselves (i.e. actual risk of default) will be higher. What I'm getting at here is a change in behaviour - MBSB's stance only makes sense if the people who are borrowing are already good credits. But the modality they're using means that they're likely to get mainly the bad credits.