Banks caught between offering loans and managing risks

There has been some misconception about banks in Malaysia.

Most young people complain there’s no way they can get their housing loans approved. According to them, the rate of rejection of home loan applications is so high, it’s almost as if banks are unwilling to lend.

But here’s the thing – banks are in the business of “lending” money. They do invest some of the deposited funds, hence, when they stop lending, they will stop generating profits.

Are banks doing well?

Perhaps some of these young Malaysians should also look at how they are spending their income. If they did, they just may find the real reason why banks are not lending to them.

Image is a statistic provided by HouseWatch.

Everyone has noticed that the approval rates for property purchasers in Kuala Lumpur is as high as 85.2% (for properties below RM250,000) to as low as 73.2% (for properties above RM500,000).

This may also mean that some Malaysians are really stretching the limits of what they can afford in their chase to buy the “best” home today, instead of upgrading only in the future.

A better strategy is to get that housing loan approved at all costs, and this means buying a property well within your range of affordability.

For those buying properties in Selangor, the image shows the approval rates for price ranges on different properties.

It’s as high as 71.7% for properties of RM250,000 or lower, and as low as 70.6% for properties above RM500,000.

If you are the CEO of a bank in Malaysia, you will always lend as long as your risks can be managed.

If a property is already overpriced based on the opinion of your in-house valuer, a bank will decide to lend based on 80% of the house price or lower instead of 90% because they need to manage their risks too.

When you look at the auction market these days, you can see that sometimes, even when the property price is 20% below the market, it does not guarantee that there are ready buyers.

Remember, if you borrow within your means, you will find that banks are willing to lend to you.

This article first appeared in

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.