Caught In A Debt Cycle
By Sonia Kaur & Za'im Zaini

Bandar Seri Begawan - A misconception that has generally been attributed to Bruneians is that they are living beyond their means.

"No single type of debt leads to bankruptcy," said a source at a bank in the country when asked what type of debt would lead to bankruptcy. Rather, it is an excess of total debt of all kinds that causes.the problem.

Sometimes, bankruptcy occurs when the borrower has the means to pay off but is reluctant or too frightened to talk to their bank and negotiate a reasonable repayment schedule.

Those who become bankrupt are those whose borrowings exceed their means, as well as those who do have means of repayment but choose not to cooperate.

Meanwhile, sources from the legal sector told the weekend that the general impression is that there is a lot of people in debt. One of the easiest ways is through credit card bills.

One of the bank's sources, however, said that there is a relatively modest bad debt burden in Brunei. Partly it is because as a matter of policy they always limit lending to what they have calculated the borrower could afford.

The criteria that the bank look for before approving loans out to people is the ability to repay their borrowings within guidelines set out and approved by the Ministry of Finance as well as a solid credit history.

Standard Chartered Bank also has similar guidelines in which lending is guided by the borrower's repayment capability, credit worthiness and other terms and conditions.

Lack of proper financial planning and sometimes, reluctance to work through the situation with their financial institution until it is too late, are just some of the reasons as to why people fall into bankruptcy.

At present, one bank may lend a reasonable amount to a borrower, not knowing that he has borrowed similar sums from other banks, which together add up to a burden too great to repay.

"We support the efforts of the Ministry of Finance to establish a credit bureau in Brunei which would make it harder for borrowers to take on excessive debt," said the bank.

They strongly encourage customers who face difficulties to discuss it with the bank as early as possible, when there is the best chance of working out a solution.

Guidelines from the Ministry of Finance have been put in place to ensure lending is only extended to customers who can repay although, all doesn't look so bleak.

The bank when asked on their opinion on people living beyond their means said that although this has been a problem in the past, there are clear signs that Brunei's citizens have started to spend less and save more.

SCB, meanwhile, noted that they believe in taking a prudent approach in lending guided by their policies and robust risk management framework.

Although they try to work out an amicable solution that suits the conditions of the respective individual or company, the situation becomes more complicated when the borrower has multiple debts with more than one bank.

Talking on bankruptcy, SCB said that their observation of bankruptcies in the financial industry is that the number of bankruptcy cases is low in relation to the number of borrowers and in relation to other markets.

"There is comfort to also note that it is in fact an improved trend in 2006 compared to 2005," SCB pointed out.

They hope that this positive trend and benign credit environment will continue.

Asked if there is any way for the court to discourage bankruptcy, the source answered, "As a mechanism to stop or reduce bankruptcy, the court is not the appropriate body to do so, because what the court processes is the end result of the debt cycle. The most appropriate body is the individuals themselves."

When asked if there was any sector of people prone to fall into bankruptcy, the source said anyone could - if a person is unable to manage his own finances.

According to statistics taken from 2006's legal year, it stated that when it comes to bankruptcy, some 350 notices were filed in 2005, an increase of 69 from the previous year; 220 receiving orders were made, an increase of 69 from the previous year; 56 adjudication orders were made, an increase of 33 from the previous year; 19 remission orders made, compared to one in 2004; one discharge of the adjudication order compared to three in 2004; and three winding-up orders made in 2005, compared to none in both 2003 and 2004.

 -- Courtesy of Borneo Bulletin

Click Here To Have Your Say On This Story

Brudirect.com News

Brunei's Fastest Growing Website with