Charge – form of security by banks

Charge is a common form of security taken by banks for granting a loan to the borrowers. When you charge your assets to the bank, you are called “Chargor” and the bank is “Chargee”. There is no transfer of ownership / title required to create a charge. The ownership remains with the Chargor. In the event the borrower is not able to pay back the loan, the bank has a right to foreclose the property.

In most cases, the borrower and the chargor are the same, this is called First Party Charge. Third Party Charge is when the borrower and chargor are different. For example, Party A and Party B enter into a joint venture to develop a housing project. Party A has the land and Party B has the expertise. Party B needs to borrow from the Bank to fund the development costs. In this case, Party A may offer the land as security for Party B’s loan.

There can be more than one charge on the same assets, i.e. First Charge, Second Charge. For example, your property value is RM1 million but your loan outstanding is only RM200,000, you may borrow more by creating a second charge over the same piece of asset. The rights of the subsequent Chargee shall rank after the first Chargee.