I was interviewed during the brunei national day and one of the questions asked was, what I was looking out for in 2010. I guess it has been on my mind for a while now, at I answered that I was a bit worried about the near future economics in Brunei, due to the recent MOF policy imposed on credit cards. So now after much pondering, I’m sharing more what I’ve been thinking about.
The banks in brunei have been imposed a new policy by the ministry of finance, http://news.brunei.fm/2010/01/12/banks-told-to-raise-minimum-credit-card-payments/, whereby
- Banks cannot issue a credit card to a person who doesn’t have their pay directly transferred to the bank.
- Credit cards that are not accordance to this rule is frozen, but the user is still obliged to pay the repayments, and is given 36 months to repay in full.
- All credit cards minimum payment will be changed from 3% or 5% (depending on the bank) to 8%.
I have been pondering about the possible consequences of these policies. There are already interesting outcomes:
- HSBC CEO stated it might be good in the long term, but temporary bad in the short term. He also stated local might turn to unruly loan sharks.
- Due to rule #1 above, banks have been doing promotions to reel people in to setup a payroll account or at least a fixed deposit account.
But here are a few factors that I think are quite important, these are from my own observations, and listening to what some people have said:
- Most people with credit cards have more than one credit card and may have those from other banks as well.
- Some low income people have somehow been able to acquire a credit card. As I have heard it, someone with a disposable income of $300 was able to acquire a credit card with a $1,000 limit.
- Those with several credit cards, who have an earning of about $2,000 may be owing up to $10,000-$20,000. which would mean currently they might already paying $300-$600(3%) or $500-$1,000(5%). Which leaves them with at least the $1,400-$1,000 of their income left.
- But when the 8% rule is imposed these people would be paying $800-1,600. which would leave the person with $400-$1,200 left. That means people will have significantly have less to spend.
- People will have less to spend.
- Private Sector will have less sales and therefore profit, some might even need to cut jobs.
- Banks will have less income from long-term credit card interest.(or is that a good thing :p )
- People will have a difficult time to purchase using debt, they might resort to loan sharks or other self destructive financing.
The good is:
- More businesses that offer cheap products/service will crop up
- More businesses that offer non-credit card financing.
- More businesses that help other businesses save money
- People with credit card debts will repay their debt in less than 2 years. And after that will have a huge amount of disposable income. (the light at the end of a long dark tunnel)