The aim is to inculcate 'responsible lending practices' by financial institutions in dealing with retail customers.
Bank Negara Malaysia (BNM) will introduce new lending guidelines to banks in the third quarter of this year as part of preemptive measures to deal with household debt.
Governor Tan Sri Dr Zeti Akhtar Aziz said the aim is to inculcate "responsible lending practices" by financial institutions in dealing with retail customers.
"The new lending practices are to ensure prudent and responsible conduct for retail financing as part of measures to preserve household sector resilience," she told pressmen at the presentation of BNM Annual Report 2010 in Kuala Lumpur yesterday.
BNM has already issued the concept paper with the banking sector. By the third quarter of 2011, all financial institutions will have to put the proper mechanism in place.
Under the new rules, banks will have to test if a borrower can afford a loan and provide information on the product. This will include its borrowing rate, repayment obligation, applicable charges, implications of non-repayment, risk associated with the product, and assistance and redress mechanism.
The new rules are not intended nor expected to affect the availability of loans or cause delays in processing.
"The banking sector is well-positioned to make the assessment of affordability. They also know the exposure or the credit worthiness of the borrower, and this is important," said Zeti.
BNM noted that the rising trend of household indebtedness could potentially become an area of concern.
During the 2000-2009 period, household debt grew at an annual rate of 13.5 per cent, while household debt-to-gross domestic income ratio increased from 46 per cent in 2000 to 76 per cent in 2010.
During the year, BNM introduced a comprehensive series of policies that included capping mortgage limits, new credit card measures and strengthened requirements for banks to adopt prudent and responsible lending practices.