BANDAR SERI BEGAWAN

THE Autoriti Monetari Brunei Darussalam (AMBD) has introduced new loan requirements including a loan cap aimed at reducing the debt burden among Bruneians.

In a statement issued yesterday, the central bank said it has introduced several new loan regulations which include a Total Debt Service Ratio (TDSR) or loan cap to all customers applying for a financing facility, effectively limiting an individual’s monthly debt obligation.

The TDSR is set at 60 per cent for those earning a minimum net salary of $1,750.

AMBD is implementing the TDSR to ensure individuals have sufficient disposable income for daily living expenses and to help them manage their debts.

“Financial institutions are required to ensure that customers will not be over-burdened with the credit/financing facilities,” the central bank said in the statement.

The new regulations will be implemented by banks, finance companies and Perbadanan Tabung Amanah Islam Brunei (TAIB) beginning June 8.

AMBD issued the new policy a day after His Royal Highness Prince Haji Al-Muhtadee Billah, the Crown Prince and Senior Minister at the Prime Minister’s Office cited a study which revealed that half of the 1,521 households surveyed in Brunei did not have active savings and one in every four needed loans to fund their daily necessities.

HRH voiced his concerns on the finding that most people did not have enough savings nor finances they could dip into in times of difficulty.

The study on financial literacy in the country was carried out by AMBD in cooperation with the Centre for Strategic and Policy Studies.

In an interview, a local bank official explained that a TDSR means “that at any one time, a person can only take loans with monthly repayments that is not more than 60 per cent of the monthly net salary”.

For those earning less than the stipulated minimum, their loans will be subject to the bank’s lending policies, the AMBD said.

The bank official said the new regulation will help people control their cash flow.

The loan cap will keep them from using a huge percentage of their salaries just paying loans every month.

“It will be good to reduce burden for customers as it will help to reduce the amount of money used to pay up loans every month,” she said.

She gave an example where if an individual has a monthly debt obligation of $1,000 and has a net salary of $2,500, then the individual’s TDSR is about 40 per cent.

“That’s within the TDSR of 60 per cent. Which means the person still has 20 per cent which can still be allocated for loans,” she said.

The AMBD also announced that the new maximum loan amount an individual can obtain is up to 18 times his net salary.

Previously, banks were allowed to lend up to 12 times the monthly gross salary of an individual.

The maximum repayment period remains unchanged at six years.

An individual is allowed to restructure or top up his loan every three years subject to “certain conditions” on customer’s repayment history, the AMBD said.

Individuals are also required to obtain an insurance protection for every new and restructured (top up) facility.

The AMBD has also regulated early settlement fees to encourage customers to settle their loans early.

Other fees that are regulated include issuance fees for Certificate of Balance and Clearance Letter as well as Restructuring and Prepayment fees.

The AMBD has introduced a new financing scheme to help heavily indebted borrowers with significant debt monthly obligations to consolidate and lower their overall monthly repayment obligation.

Education and home improvement financing are exempted from the new regulations.

The AMBD said the new regulations are aimed at reducing household debt which is “a source of vulnerabilities to the social economy of the country”. 

The new policies will inculcate responsible and ethical lending practices by banks; foster a healthy and sustainable credit market which in turn contributes to economic and financial stability; and further strengthen consumer protection.

The Brunei Times