KUCHING: Lower rates may ease loan burdens, but poor financial literacy still traps many Sarawakians in debt, said Yeo Wee Kiak.
The Credit Counselling and Debt Management Agency (AKPK) Kuching Branch Head said the recent reduction in the Overnight Policy Rate (OPR) to 2.75 per cent is generally welcomed, particularly by borrowers with housing loans and those using financing for investments.
“A lower financing rate translates into reduced borrowing costs and monthly instalments, offering immediate financial relief to existing borrowers.
“This also benefits investors who leverage bank financing for investments such as Amanah Saham Bumiputera (ASB), where historical dividend payouts typically exceed the cost of borrowing. The reduction in rates now further enhances their net returns,” he told Sarawak Tribune.
He added that for new borrowers, lower instalments contribute to a reduced Debt Service Ratio (DSR), which may improve their chances of loan approval.
“In Sarawak, household debt portfolios commonly comprise housing loans, hire-purchase facilities, personal loans, credit card debt, and increasingly, Buy Now Pay Later (BNPL) obligations.”
He explained that the OPR has a direct impact on financial institutions’ Base Rate (BR) or Standardised Base Rate (SBR), affecting floating-rate loan products such as housing loans.
However, he said, fixed-rate loans, including most hire-purchase facilities and credit card debts, are unaffected due to their predetermined interest rates.
“Similarly, BNPL schemes are generally not governed under the Banking Act and therefore do not adjust with monetary policy changes.”
Despite these limits, he foresees that the rate cut is expected to ease cash flow management for mortgage borrowers, potentially leading to increased savings.
“Borrowers may also explore refinancing options for renovations, business capital, debt consolidation or personal needs.
“While the benefits of the rate cut may vary depending on loan type, its positive implications for liquidity and financial planning are significant for targeted segments of the population.”
The bigger problem: Financial literacy and behaviour
But financial relief is only part of the equation. Yeo said poor financial literacy remains a major challenge across Sarawak.
“The lack of understanding regarding basic financial planning, budgeting, savings, and debt management contributes significantly to the financial vulnerability observed across the region.”
He said this has led to poor financial behaviours such as impulsive spending, weak budgeting, low savings, and poor repayment discipline.
“Alarmingly, the overall financial knowledge among Sarawakians remains at a concerning level.
“This is evidenced by the increasing number of individuals falling victim to financial scams, investment frauds such as money games, and involvement in mule account activities. Many of these result in their banking access being restricted, with accounts frozen,” he said.
He added that debt mismanagement often leads individuals to seek help from unlicensed money lenders, worsening their financial stress.
“A lack of emergency savings further heightens vulnerability to economic shocks.”
More are seeking help
According to Yeo, AKPK has seen more individuals seeking financial advisory and Debt Management Programme (DMP) services, with increased visits to its Kuching branch and Financial Advisory Offices in Sibu, Miri, and Bintulu.
“While this reflects growing distress, it also shows that more Sarawakians are becoming aware of the importance of early intervention.
“People are beginning to take proactive steps to address their financial issues through AKPK’s debt management and advisory services.”
He said this growing demand suggests that AKPK’s Financial Education Talks and Seminars are starting to make an impact in promoting responsible financial behaviour.
How to avoid overborrowing
On how the public can take advantage of lower interest rates without falling into debt traps, Yeo advised borrowers to reflect on the purpose of taking a loan.
“If you are thinking about taking a loan, ask yourself whether it’s for education, a home, or something non-essential like a holiday or wedding. This helps you decide whether borrowing is necessary.”
He explained the difference between good and bad debt. Education and housing loans, he said, tend to increase long-term financial value, while credit cards and BNPL schemes often lead to excessive spending.
“The fear of missing out (FOMO) and the desire to keep up with others can drive people to spend on things they don’t really need, such as gadgets or expensive meals, just to avoid feeling left behind.”
He noted that some borrowers also take personal loans to finance weddings.
“While such celebrations may feel like once-in-a-lifetime events, consider whether it’s worth going into years of debt just for a week-long occasion.”
Know your limits
Yeo recommended using the Debt Service Ratio (DSR) as a guideline when assessing loan affordability.
“Ratios below 40 per cent are generally considered good, while ratios above 50 per cent may indicate that you’re taking on too much debt relative to your income.”
He added that financial planning should also account for dependents.
“For example, if you are supporting children and elderly parents, your available income may be lower. In such cases, you might need to consider taking a smaller loan amount or extending the repayment period.”
He advised borrowers to calculate their monthly commitments, including regular and occasional expenses, to better understand their financial position before deciding on a loan.
“By fully understanding all your financial responsibilities, you can make more informed decisions on whether taking a loan is sustainable or even necessary.”
Seek help from legitimate sources
Having said that, Yeo encouraged those in doubt to seek professional help.
“AKPK offers free financial management advice and solutions to households and MSMEs. You can book an appointment at mybijakkewangan.akpk.org.my or visit the nearest branch.
“However, it is reminded that AKPK does not appoint any third-party agents, and all our services are completely free of charge.”
