Limit maximum bank interest to six months, ex deputy minister says

SHAH ALAM - Banks are being urged to set a maximum limit on interest rates for personal loans by stopping interest accrual after six months to ease the burden on borrowers facing financial difficulties.

Former deputy finance minister II Datuk Yamani Hafez Musa suggested that this proposal could ensure stricter discipline in loan approvals while balancing bank profits with social responsibility.

"After three or six months of non-payment by the borrower, the bank continues to charge interest endlessly, similar to loan sharks, which puts pressure on individuals with financial problems.

"Instead, banks should have a cut-off point where interest stops after a maximum of six months. This means, after that period, no additional interest would be charged, giving some relief to those in hardship," he said.

Yamani, who is also the former Sipitang Member of Parliament said that if banks knew they would only receive interest for six months, they might tighten loan approvals, improving discipline and control over loans granted.

"This calls for a more fair and balanced system for applicants in financial distress. While conventional banking requires borrowers to pay interest, banks also make substantial profits from the system.

"Therefore, there is a need to consider individual circumstances, particularly those taking personal loans and impose a limit on the interest that can be set," he said.

He added that a growing concern was that borrowers, especially younger individuals, turned to loan sharks when they did not meet the bank's requirements for loans.

"Therefore, banks should provide financial literacy guidance before borrowers make decisions to take out loans. This includes understanding the purpose of the loan and the consequences of failing to repay it.

"Banks also need to assess borrowers' financial capabilities transparently and provide a brief video on financial safety before applicants take out loans," he said.