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Wednesday, December 16, 2015

Creating a financially savvy society

Fitri Shahminan

ADDRESSING the financial woes of Bruneians and creating a financially-savvy society was high on the national agenda this year.

The year 2015 saw a number of policy interventions and reforms to address the debt issues faced by Bruneians including huge personal debts and proliferation of financial scams.

It was initially revealed in May through a financial literacy study initiated by the Autoriti Monetari Brunei Darussalam (AMBD), the country’s central bank, that among 1,521 households surveyed, almost half did not have active savings with one in four needing loans to finance their daily necessities.

While in October, the final version of the study confirmed that 60 per cent of the 1,867 respondents surveyed will not be able to cover their expenses for more than two months if they suddenly lose their jobs.

More than 30 per cent of the respondents said they won’t even sustain their cost of living for a month.

The financial woes of Bruneians, which include overspending, indebtedness, proliferation of financial scams and lack of savings culture were documented in the initial report made public in May.

The final version of the study also showed 34 per cent of households surveyed do not have a budget.

Total Debt Service Ratio and new loan caps

Just one day after the study was disclosed to the public in May, AMBD introduced new loan requirements including a loan cap.

The central bank 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.

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

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.

Under the new reform, 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.

In the same month, the central bank also launched its smartphone application which aims to curb the spread of financial scams.

The app lists out the most common types of financial scams in Brunei and provides information about the roles and functions of the central bank and financial institutions in the country.

By browsing through the categories, customers will be more informed of the nature of each financial scam. “This information is important and up to date with today’s modernisation of information technology where unlicensed investments are easily spread via social media and short-messaging services,” said AMBD Managing Director Yusof Hj Abd Rahman during the opening of AMBD Day 2015.

Bank officials welcomed the move to support the national agenda of financial literacy.

A Bank Islam Brunei Darussalam (BIBD) top official in October said banks must practise responsible lending to ensure customers do not fall into serious financial problems.

“The responsibility of banks is to make sure that they provide financing to a level where the customers are able to afford it (loan amount and its repayment).”

Another local bank official said the TDSR would be good to reduce burden for customers as it will help to reduce the amount of money used to pay up loans every month.

Proposal of national strategy to battle personal finance woes

In October, following the release of the final version of the national study on financial literacy which was commissioned to Centre of Strategic and Policy Studies (CSPS) by AMBD, the think tank proposed for the implementation of a national strategy to address Bruneian’s financial problems.

Four strategic themes were recommended under the national strategy.

The first theme is promoting financial education which is aimed at changing the behaviour of Bruneians in financial management.

The second strategic approach is the dissemination of free, independent information and advice by using traditional and social media to increase awareness on financial literacy.

Another strategy is to improve institutional design and regulation to enhance the socio-economic and financial environment. This will enable consumers and businesses to make better informed decisions.

The final approach is to have better governance and evaluation through the setting up of a central body to spearhead and implement the proposed national strategy.

AMBD loosens up financiing regulations

AMBD last month amended several of its regulatory notices, relaxing some conditions on unsecured personal credit or financing facility and credit cards to “create a stable consumer finance market”.

The latest amendment saw the expansion of what would fall as part of the borrower’s ‘gross monthly income’ which includes variable, rental and business income for sole proprietors.

The AMBD is also allowing an individual to restructure or top up his/her loan after 50 per cent of the original tenor has lapsed subject to certain conditions on the borrower’s payment history.

Banks may also offer credit cards without requiring its clients to assign their salary or place a fixed deposit under lien to the credit card issuing bank.

The amendments, effective October 28, are to be implemented by banks, finance companies and Perbadanan Tabung Amanah Islam Brunei.

Earlier this month, BAB Chairman Rino Donosepoetro told The Brunei Times that the new ruling will give customers “greater choice and flexibility on choosing products that suit their needs”.

“From an environment perspective, this (amendment) will form a stable and balanced consumer finance environment which essentially means an environment where as a customer you have the multitude of options of financing products,” he said.

The chairman said it will also provide more access to financing by excluding the fixed deposit-secured cards and recognising the variable, rental and business income within the scope of Total Debt Servicing Ratio (TDSR) limit of 60 per cent.

Donosepoetro, who’s also CEO of Standard Chartered Bank Brunei, said the regulatory amendment will also help entrepreneurs access more financing products.

“You don’t have to be a salary person to be recognised in this whole computation. You are eligible even if you are an entrepreneur whose cash flow can be unpredictable,” he said.

Sumber - The Brunei Times

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