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Kuala Lumpur. Malaysia's central bank has introduced a host of rules for credit cardholders, amid concerns that household debt here has risen to levels among the highest in Asia.

From next year, credit cardholders who earn less than RM36,000 (S$14,700) yearly will be allowed to hold only two credit cards, with the credit limit on each card capped at twice the cardholder's monthly income, according to a report in The Star daily yesterday.

Those holding credit cards from more than two banks will have to pick two cards and cancel the rest. They will have 24 months to repay the outstanding balances on their cancelled credit cards.

The move targets the lowest-income earners since they are seen as the most vulnerable to credit-card debt. About half of the 3.2 million cardholders here are expected to be affected.

Credit cardholders owe some RM24 billion to card issuers in total.

The initiative was welcomed by the Federation of Malaysian Consumers Association (Fomca), which has followed this issue closely.

"It's a good start, especially since it will target young executives who have just entered the workforce and are still new to debt," said Fomca chief executive Paul Selvaraj.

This marks the latest attempt by the authorities to tame household debt, which has spiked in recent years.

Malaysia's household debt rose from RM472 billion in 2008 to RM581 billion last year.

During the same period, the proportion of Malaysia's household debt to gross domestic product increased from 63 percent to 76 percent.

"It's now one of the highest in Asia," noted RAM Holdings chief economist Yeah Kim Leng.

Besides credit cards, the recent debt increase has been fueled by housing loans, which have experienced a boom thanks to low mortgage rates.

Cheap credit became available after Bank Negara cut policy interest rates during the global downturn in 2008, in a bid to spur the economy.

Close to half of household loans are taken to finance home purchases. Loans to buy vehicles - in a country with some of the highest car prices in the world thanks to hefty import duties - and consumer products each take up another 20 percent.

The central bank faces a delicate balancing act when managing household debt, said Yeah. "With the economic slowdown, there's a need to provide support to domestic spending... But if you encourage spending, you must be careful that those who can't afford it, don't over-borrow."

Two years ago, the government introduced a RM50 fee on each credit card. In February this year, it started a money management program called Power, to promote financial literacy among the young. More than 11,000 people had signed up by September.

Analysts said the situation remains manageable for now. For one thing, the unemployment rate has stayed low at 3.5 percent in the past three years. Bad loans make up only 2 percent of all loans.

Still, some urge the authorities to take more pre-emptive steps. A recent commentary in The Star said banks should look at giving loans based on what the borrower can afford - after deducting expenses - rather than being based on salary alone.

It said that household debt will emerge as a major problem should the economy take a turn for the worse, unemployment rise, interest rates increase, or cost of living continue to escalate.

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055.