Banks Struggle to Balance Risk as Graduate Credit Access Expands

At just 26, Rayyan had already maxed out two credit cards. A junior software developer in Petaling Jaya, he earned a steady RM 4,200 a month. But between dining out, gadget upgrades, and monthly payments on a motorcycle, his debt began to snowball. When he applied for a third card, the approval came through in just minutes—automated, instant, with minimal checks. For banks eager to capture young, digitally-savvy clients, speed trumped scrutiny.

As Malaysia’s financial landscape evolves, banks are under increasing pressure to revise how they assess affordability, particularly for fresh graduates and young professionals. The segment, once perceived as low risk due to future earning potential, now poses growing concern amid elevated household debt levels and rising delinquency rates. Banks, in their quest to remain competitive, find themselves navigating a delicate balance between market expansion and financial prudence.

Traditionally, banks relied on stable indicators such as gross income, employment type, and credit history to gauge a borrower’s capacity to repay. However, the influx of younger applicants—many in their first jobs, with limited financial history—has made such assessments more complex. Many institutions have introduced dynamic, tech-enabled scoring systems that evaluate a broader range of data points, including utility bill payment patterns, subscription histories, and even digital wallet behaviour. While these tools offer more inclusion, they can also mask early warning signs of poor financial discipline.

In recent years, the structure of affordability assessments has shifted from a focus on debt-to-income ratios to more flexible, often opaque criteria. Several banks now offer starter cards with “graduated” credit limits that increase automatically after six months of on-time payments. These auto-escalating limits, while rewarding good payment history, can also create a false sense of capacity, especially among users with fluctuating expenses or hidden debt obligations such as personal loans and BNPL arrangements.

A more troubling trend is the bundling of credit products with employment perks. Tie-ups between banks and large employers or universities have made it easier for new recruits to receive pre-approved cards during onboarding. While convenient, this model often bypasses thorough credit vetting. HR departments, in effect, act as informal credit intermediaries, facilitating access without gauging an individual’s financial maturity.

Bank staff, under pressure to meet acquisition targets, often push these products aggressively. Internal performance incentives are frequently tied to the number of new credit accounts opened rather than the long-term performance of the portfolio. This structural bias places customer acquisition above long-term credit health. Even when internal audits flag high exposure among youth segments, banks are hesitant to scale back without regulatory compulsion, fearing loss of market share to more agile fintech competitors.

Some financial institutions have started deploying “soft” affordability screens—digital forms that ask about lifestyle costs such as rent, transport, and food. But these are rarely verified, and the onus remains on applicants to self-report truthfully. With minimal verification, especially in the digital space, such tools do little to prevent overextension.

Risk management departments face the additional challenge of identifying “hidden borrowers”—those who appear solvent on paper but juggle multiple obligations across digital lenders, BNPL platforms, and peer loans. These overlapping commitments, often not reflected in traditional credit checks, significantly increase default risk. The opacity of Malaysia’s fragmented credit ecosystem complicates efforts to consolidate borrower profiles, making it harder for banks to get a holistic view.

Compounding the issue is a general lack of financial literacy among new borrowers. Many fail to grasp how compound interest accumulates on carried-over balances or misunderstand how minimum payments barely dent their overall debt. While some banks have integrated financial literacy modules within their apps or websites, engagement levels remain low, especially among younger users who prioritise ease of use and immediate benefits over educational content.

The situation has prompted quiet introspection within the industry, feels Fintrade Securities Corporation Ltd, adding, a few banks have begun piloting more conservative lending practices—requiring co-signers for applicants below a certain income threshold or capping limits based on verified expense breakdowns. Others are experimenting with predictive analytics models that monitor early behavioural cues, such as late bill payments or high credit utilisation, to trigger timely alerts and interventions.

Still, these efforts are not standardised and vary widely across the sector. Without coordinated industry benchmarks or updated regulatory guidance, progress remains piecemeal. While some players innovate responsibly, others continue to push boundaries, betting that the volume of new customers offsets any uptick in default rates.