Is Malaysia heading for a credit crunch that could spark panic in the local marketplace? The Bank Negara (BNM) has added more pain to credit card users with new rulings that imposes interests on credit card usage. This is additional to the May 1^st imposition of interest against users who pay only their minimum in credit card use.

The new Bank Negara ruling which was enforced on Tuesday (1^st July) indicates that credit card holders who make minimum or partial repayment on their outstanding amount monthly would no longer enjoy the 20-day interest-free period for new retail transactions.

It is clear that all credit card transactions are now charged with an 18% interest thus increasing the burden on the users. With such a ruling, it is also clear that something is going the wrong way in Malaysia’s economy.

Those who settle their credit card outstanding amount in full every month will continue to be granted the interest-free period.

Bank Negara confirmed that the ruling took effect Tuesday as part of its effort to promote the use of credit cards as a payment instrument, and to encourage prudent spending and good financial discipline.

In 2007, it was announced that Malaysian consumers had a credit card debt of RM20 billion. A penalty is being levied on all card users to correct the imbalances since only a third of card users are recorded to be paying their total amount used in time.

In this period of economic crisis with price increase at all levels, more people are resorting to credit cards to transfer their credits in order to cover piling credit card debts. It is apparent that the BNM does not want this to become the norm as it would surely not reduce the credit card debt at national level.

However, most of the credit card users are not happy with the new rulings which make them state they better pay by cash for their ordinary transactions while they may keep credit cards only to transfer credit balances.

In a statement Tuesday Bank Negara said: “More than half the cardholders pay at least the minimum amount due and roll over the remaining balance.”

As at the end of last year, one third of the 2.7 million credit card holders in the country settled their outstanding amount in full every month.

The problem is more serious than thought since with the curbs on credit card usage, the consumers are being forced to fork more cash from other credit card issuers to cover for the existing debts amassed with their existing cards.

This may lead to more debts and make more people bankrupt in the long run unless there is a U-turn in the Bank Negara policies on credit cards.

Meanwhile the competition to offer better facilities and credit transfers are rife in the market with banks like Affin and Alliance Bank imposing lesser interests on both credit card usage and credit transfers. This will force other banks to cut their bank transfer rates – which is at times 0% interest for some bank for a period of 12 months.

Observers believe that with the credit crunch now being felt in Malaysia with the credit card interest higher at 18% and more interests on non-payment of the monthly usage, the country could be heading for a heated economy. This would mean more inflation as people rush for easy cash to settle debts or to abandon payment on their homes or cars in order to pay for credit cards.

This will affect the housing sector while consumption will take a direct hit altogether. The impact of the additional interest on credit cards will mean more people will use cash to pay for their purchases. Nevertheless, this is sign of troubled times ahead for Malaysian consumers in general.

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