Sometime in 2003, I was fortunate enough to have a new South Korean friend during a working trip to Singapore- What amazed me was how she had five credit cards- She assured me it was quite normal as they were pretty easy to get- It turned out that South Korea plunged into a crisis that year because people got carried away and spent money they did not have- Millions defaulted on their payments, the government had to rescue its biggest credit card company and the economy slowed down significantly- A crucial aspect of the story is that regulators tried to enforce stricter measures to get a grip on the situation but they were too late- Without trying to sound too boastful, this is where our central bank, Bank Negara Malaysia, has done well- It has been able to learn from the experience of others and applied the necessary preventive measures- Last year, after slashing interest rates to a record low of 2 per cent to spur the economy amid a global recession, it quickly raised borrowing costs- Keeping rates too low for too long was one of the reasons that led to the financial crisis in the US- It was also last year that BNM introduced limits on mortgages for those wishing to buy more than two houses, to curb speculation in the property sector- It was evident that prices in selected locations, the Klang Valley, for instance, were too high- Once again, similar measures were adopted before in countries like Singapore and Hong Kong to cool a red-hot property market- But in fact, BNM was dusting off its old playbook and applied what it had already done way back in the mid-1990s- Last week, BNM announced new rules, making it harder for people to get a credit card while at the same time capping loan limits and the number of cards they can hold- Now, we can expect more rules for banks to adopt what is called responsible lending practices- What this means is that banks must carry out tests to see if a person can afford the loan that's being applied for- Banks must also be more forthcoming with information and tell customers how much they have to pay when interest rates go up- This would happen in cases where a loan comes with a promotional cheap rate that's only for a certain time- Then, the higher rate would kick in, meaning higher monthly payments- What does it mean to the man in the street? It means that the average Ali will have some measure of protection against taking up loans he cannot afford- It also means the consumer will be better informed- But the bigger picture is that the country hopefully would be able to head off potential problems with household debts in the future with these measures- This means not having to spend taxpayers' money for bailouts, something that South Korea had to do in 2003- A more recent experience is what the US had to go through with its subprime debt crisis- The fact remains that household debt, while high, is not a major concern for now because the rate of bad loans has been falling since 2007 to about 2 per cent now- Also, the bulk of household debt comprises mortgages that use property as security, therefore reducing the risk of losses for lenders- ...

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