by Tanu Pandey
PETALING JAYA: 2014 is bound to keep the banking industry on its toes with expected softening of growth in consumer loans, a possible hike in policy rates by Malaysia’s central bank and a new framework for base lending rate (BLR).
Consumer loans growth is expected to taper from its usual 11% to 10% as mortgage costs rise in the event of a hike in the overnight policy rate (OPR) in the country.
“As a trend the loans growth in Malaysia is double the gross domestic product (GDP) growth. The country’s economy is expected to expand between 4.5% and 5%, which means that the loans growth will be around 9% to 10%,” AMMB Holding Bhd’s group managing director Ashok Ramamurthy told The Malaysian Reserve.
The lower growth for consumer loans is partly due to Bank Negara Malaysia’s (BNM) policies implemented under its circular “Measures to Promote Sustainability of the Property Market” that will make borrowing difficult to buy houses.
“These measures, together with potential interest rate hikes by BNM in 2014, fiscal tightening by the federal government and the subsidy rationalisation programme this year, could further drag loans growth momentum in the retail segment, temporarily leading to rising credit cost and dampening investor sentiment for the banking sector,” said a banking analyst.
MIDF Amanah Investment Bank Bhd research head Zulkifli Hamzah said the banking sector could face contagion risks from external markets.
“Apart from the local factors, some of the local banks have exposures to foreign markets which are grappling with many issues,” he said.
Analysts are expecting a possible hike in the OPR by about 0.5% this year, a move that will make borrowing expensive for Malaysians.
BNM will only take action on the OPR if it finds that inflation is moving towards uncomfortable levels due to demand induced factors.
“So far we have not seen any cooling in demand due to the measures taken by the central bank. About 3% to 4% of our new loans are developer interest- bearing scheme (DIBS). For next year it may be impacted by 1% to 2 %. So if we take into account the change, we can achieve a 9%-10% loans growth,” a senior official from CIMB Bank Bhd told The Malaysian Reserve.
Corporate loans, however, are expected to grow at a good pace in 2014.
“The loans growth for the corporate segment will be 12% to 13% this year. So, composite loans growth for the bank could be around 9%-10%.
Among the sectors that could see a good take up rate will be oil and gas, education and power, apart from property where there will be a softening,” Ramamurthy said.
International rating agencies have voiced concerns about the sector. Moody’s Investor Service was cautious on the high household debt as, combined with a pronounced appreciation in housing prices, it could represent potential vulnerabilities to the local banking system that could adversely affect overall economic conditions.
”Constraints to Malaysia’s creditworthiness include limited transparency in relation to the scale of non-financial public sector indebtedness and the increasing use of off-budget financing vehicles,” it said.
Standard & Poor’s (S&P) on Dec 11, 2013, posed worries over the credit profiles of banks in Malaysia and Thailand, which it said are vulnerable to deterioration in the health of their respective household segments due to the rapid growth of household debt.
“Sluggish economic conditions, combined with a high level of corporate and household debt in some major economies will stress banks’ asset quality,” S&P had said.
Ramamurthy said that banks will need to manage their provisioning. “Our view would be that the impairment ration has been going down but it will be flattish.”
BNM is set to introduce a new framework for BLR, the reference rate for banks in the country to price their loans for customers. The BLR is at 6.6% currently, while the prevailing interest rate charged by most banks is between 4.2% to 4.9%.
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