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M'sia's household debts seen rising

Publication Date : 18-03-2014


Analysts expect loan growth to slow down this year but household debts to continue to rise despite measures taken by Malaysia's central Bank Negara to cool lending in this segment.

For this year, analysts are forecasting loan growth to moderate between 8% and 10% compared with about 11% last year due to various prudential measures implemented by the central bank since July last year targeting mortgage and personal loan segments.

These include shortening the maximum tenure of loans to purchase residential and non-residential properties to 35 years from 45 years previously.

The tenure for personal loan has been lowered to maximum 10 years from 25 years previously and pre-approved personal financing products were prohibited.

Besides this, key credit providers are required to observe prudent debt service ratios in their clients credit assessment.

Alliance Research analyst Cheah King Yoong said he was maintaining its industry loan growth forecast for this year at 9%.

He attributed the lower loan growth projection this year to a moderation in household loans dampened by the prudential measures taken by Bank Negara coupled with the Government’s subsidy rationalisation programme that affected spending.

He also said that the implementation of measures to curb speculation in the property sector such as the real property gains tax, increasing the minimum price of property purchase by foreigners from 500,000 ringgit (US$153,022) to 1 million ringgit and abolishment of developer interest bearing scheme would also contribute to slower loans growth.

The slower loan growth in the consumer segment is expected to be partly offset by business loan growth fuelled by increasing exports and Government-related projects such as the Economic Tansformation programme (ETP).

The central bank would be having a press conference tomorrow in conjunction with the release of its Annual Report 2013 and the Financial Stability and Payment Systems Report 2013.

Commenting on the ETP projects, Maybank IB research analyst Desmond Ch’ng said of the 224 billion ringgit in committed investments, 39.6 billion ringgit or 17.6% was realised between 2011 and nine months of 2013.

Another 47 billion ringgit or 21% of the total, was targetted for realisation in 2014 and 2015, he noted.

Net interest margins (NIM), according to analysts, will continue to be compressed as in previous years as cheaper loans make up an increasingly larger proportion of total outstanding loans.

NIM compressed by about 11 basis points (bps) on average in 2013 and analysts expect on average compression between seven bps and 10 bps in 2014.

The country’s household debt, which is at about 86% of gross domestic product as at end-December last year and one of the highest in the region, will continue to spiral.

This is because of increasing demand for housing and vehicles by the younger group of working population.

Despite this “looming” threat, analysts does not foresee it to impact the banking industry in view of banks sound lending practices and the country’s low unemployment rate although the lower income group could be at a disadvantage with rising household debt.

The industry on the whole remains well capitalised with the total capital ratio, tier-1 capital ratio and common equity tier-1 ratios at 14% (Dec 13: 14.4%), 12.5% (Dec 13: 13%) and 11.7% (Dec 13: 12.1%) respectively. These imply that the domestic banking system is resilient to withstand unanticipated shocks to the financial system.

*US$1 = 3.27 ringgit


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