MBSB defends loan pricing

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) has expressed disappointment over media reports that non-financial institutions are undercutting banks by offering cheap personal loans leading to excessive competition in the banking sector.

Its chief executive officer, Datuk Ahmad Zaini Othman, defended the pricing of MBSB's loans, saying that it reflects the level of risks undertaken by the non-financial institution.

The reports were misleading the public and conveyed a negative picture of MBSB, the oldest local financial institution in the country, he said in a statement yesterday, in response to statements that excessive competition was compelling some banks to drop their prices below economic levels.

He said that MBSB had made an impact in the industry in mid-2009 when it re-entered the market and provided personal financing-i (PF-i) to government employees at the lowest rate of 4.90 per cent per year.

"This was markedly lower than most rates then which were above 7.50 per cent. It was also significantly lower than another source of financing - credit cards, at between 13.5 per cent to 17.5 per cent or its cash advance withdrawals at the maximum of 18 per cent.

"MBSB believes that the rate offered is the true reflection of the level of risks undertaken by MBSB as repayment is collected via salary deduction," he said.

He said that the government employees' PF-i loan amount is arrived at by ensuring that the total deductions (including PF-i instalment) do not exceed 60 per cent of an employee's income, hence leaving the person with a balance of 40 per cent of net disposable income.

"As government servants would obtain their vehicle hire-purchase and housing finance from the government due to the lower rates offered in relation to those offered by the banks, these instalments, which appear on their salary slips, have been factored in as well.

"Hence, the government servants do take home sufficient pay to cover their living expenses," Ahmad Zaini said.

By Bernama