Movable property can be collateral for loans soon

National 2 minutes, 43 seconds

BELAIT

BUSINESSES in Brunei will soon be able to use movable property including cars, crops, and livestock as collateral for loans with financial institutions, according to Autoriti Monetari Brunei Darussalam (AMBD).

AMBD yesterday said the move will be made possible through the introduction of the Secured Transaction Order (STO) earlier this year, which has paved the way for the establishment of the Collateral Registry System (CRS) by December this year.

Previously, business loans in Brunei require either land or property to serve as collateral. However the reforms would allow virtually any movable property to act as security for a loan, provided the lender deems the item creditworthy.

“The reforms will basically open up a huge range of possibilities on what can serve as collateral for secure lending from creditors (financial institutions) to companies and individuals,” said AMBD assistant officer Md Shahrul Azri Ramlan after the roadshow on the new registry system at the Dewan Persidangan in Kuala Belait.

“However, CRS and STO do not supersede other regulations like loan caps (total debt service ratio), or change repayment terms or policies set by banks. It simply changes what can act as collateral.”

The valuation of the movable collateral will be decided by the creditor, and it is up to the borrower to decide if creditor’s valuation and terms match their own before agreeing to a loan. “In this respect, it is up to the bank’s risk management and compliance team to decide exactly what the range of movable property will be acceptable as collateral.

“But judging from the early response, major financial institutions in the country are on board with expanding the collateral (from fixed assets like land and property),” added Md Shahrul.

The STO and CRS are expected to significantly improve the ease of getting credit and in turn boost the ease of doing business in the country. Brunei will be one of the few in the Southeast Asian region to have a collateral registry, although the system is widely practised in Europe and the United States.

International consulting and financial advisory firm IOS Partners, who are the appointed project vendors for CRS, said the move will provide the basis for a free-flowing credit market.

“Ultimately this allows companies, especially smaller businesses to leverage assets to gain capital for investment and growth,” said Elvir Cisija from IOS.

Md Shahrul gave the example of a small scale fisherman who does not have a fixed income and is in need of a loan to expand business, but has no land or property to leverage as collateral.

“However, the fisherman can use his boat as collateral to creditors to generate capital,” he said. “He can then invest this capital into developing and expanding his operations.”

Cisija added that as the Collateral Registry System serves as a database that allows financial institutions to register collateral in movable property, both borrowers and creditors can use the system to check their history.

“From a creditor’s standpoint, I can search the system to see if the applicant’s movable property has been made collateral for another loan by another creditor.

“And from the debtor’s point of view, I can search to see what movable assets under (my name) have been made collateral,” he added.

The Brunei Times