Alarming trend of late payments will likely to lead to households indebtedness and bankruptcies

By SHAHEERA AZNAM SHAH / Pic By ISMAIL CHE RUS

More highly indebted Malaysians are failing to adhere to their loan payments’ monthly deadline, forcing lenders to slap various additional late charges and worsening borrowers’ credit credentials.

Credit Counselling and Debt Management Agency (AKPK) said there is an alarming trend of late payments and it gives adverse consequences to borrowers.

Its CEO Azaddin Ngah Tasir said Malaysian households’ indebtedness and bankruptcies could record a steady rise if the present trend of late payments persists.

“Good payment habits can lead to savings on financial charges and favourable rates from financial providers, as well as help avoid banks repossessions, foreclosure and bankruptcy,” he said at the launch of “Pay on Time” campaign in Kuala Lumpur yesterday.

Many borrowers tend to juggle their loan payments to fit their income and expenses. Others opt to delay some of their monthly obligations for a few months before they are reprimanded by banks.

Lenders are reprimanding these borrowers, slapping late payment charges and asking their credit department to take actions as banks try to prevent these loans from turning to bad debts.

Organisation for Economic Cooperation and Development’s survey in 2016 showed 55% of the respondents admitted to not paying their bills on time. The same study also indicated that Malaysians’ financial attitude was recorded at 39%, below the world’s average by 11 percentage point.

According to the Asian Institute of Finance study targeting Generation Y, 70% of the credit-card owners opted for a minimum monthly payment, while 45% of them are prone
to late payment.

Meanwhile, Azaddin said as at Aug 31, 2018, 40% of the 230,000 indebted individuals attending AKPK’s management course admitted to having poor financial planning.

“Fifty-seven percent of the cases involved credit-card woes,” he said.

Since 2006, AKPK has attended to 817,851 individuals with credit problems, with 243,699 of them having enrolled into AKPK’s debt management programme.

As of Sept 30, 18,009 debt cases have been resolved under AKPK’s management programme, totalling loan outstanding of RM718.4 million.

Azaddin said a majority of the individuals seeking help from the agency comprise those from the B40 (below 40%) income group with a monthly salary of less than RM5,000.

“Seventy-five percent of our clients are between the age of 30 and 50. But this is expected because as you grow older, you will be prone to more debt.

“However, in terms of income group, 85% of them are earning below RM5,000. The problem arises when they do not prioritise their debt and manage their money.

In line with its objective to increase financial literacy, AKPK has introduced the “Pay on Time” campaign to educate the public on the consequences of late payments.

The financial management agency has collaborated with the Association of Banks in Malaysia (ABM) and the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) to promote a prudent financial management at a national level.

“As reported, Malaysians’ payment behaviour is disappointing and we aim to get members of the public to practise good payment habit.

“Not knowing and do not know how much you owe and have paid are recipes for a potential financial disaster,” Azaddin said.