Wed Jul 9, 2008 2:06pm BST


KUALA LUMPUR, July 9 (Reuters) – Malaysia has asked local banks to reset terms of mortgage loans to allow lower monthly payments for borrowers, a government minister said on Wednesday, as Malaysians scramble to cope with rising inflation estimated at 26-year high last month.

The government had been in discussions with banks on the proposal, which was aimed at easing borrower’s burden, Second Finance Minister Nor Mohamed Yakcop said.

Banks welcomed the suggestion and were ready to implement it, Nor Mohamed was quoted by the online version of the Star newspaper as saying.

As part of a broad overhaul of the country’s energy pricing system, the government raised last month the price of gasoline by a hefty 41 percent and diesel by 63 percent.

Inflation in June may exceed 6 percent, central bank governor Zeti Akhtar Aziz said on Wednesday.

The rise would mark the highest in 26 year, data of the statistics department showed.

Rising inflation may add pressure on the central bank to raise interest rates for the first time since 2006, analysts said.

Malaysian banks, which include top lender Malayan Banking (MBBM.KL: Quote, Profile, Research) and industry No.2 Bumiputra-Commerce Holdings (BUCM.KL), could see the rate of non-performing loans inch up as consumers suffer a reduction in disposal income due to surging prices, analysts said. (Reporting by Soo Ai Peng)