Bank Negara Malaysia to consider tougher policies?

KUALA LUMPUR: In an effort to keep financial imbalances in check, Bank Negara Malaysia (BNM) is expected to consider tougher policies through a tighter monetary stance, which could lead to an increase in its policy rate, opined Malaysian Rating Corp Bhd (MARC).

The rating agency said in a research note dated yesterday that BNM is expected to introduce more “macroprudential” measures to scale back the over-leveraged position of the household sector.

MARC cautioned that the household debt-service ratio (DSR) has risen to about 43.5% in 2013 from the cyclical low of 39.1% in 2006, suggesting an increasing burden on Malaysian households.

“While it was noted that the DSR has slowed to below 40% for new loans, the low-income group remained overstretched with a leverage position of up to seven times their income in 2013,” said MARC.

It said the issue of rising household debt was also amplified by the resilient pace of growth in private consumption (+7.1% year-on-year) in the first quarter of 2014, which partly fuelled the overall economic growth to a robust 6.2%.

It said the monetary policy committee statement by BNM on May 8 was related to the need to further address rising household debt, which continued to accelerate to 86.8% of GDP as at end-2013 following strong loan growth in certain segments of the economy, “although various macroprudential measures introduced by BNM have somewhat moderated the increase in household indebtedness.”

Meanwhile, MARC noted that in Singapore and Malaysia, credit-to-gross domestic product (CTG) climbed from 101.7% and 109.9% respectively in 2009 to 155.2% and 124.5% respectively in 2013.

However, MARC cited BNM’s view that although CTG has surpassed its long-term trend, the trend does not imply signs of credit excessiveness.

In Malaysia, both loan applications and approvals in the banking system have rebounded since mid-2013, thanks to the improving prospects of the global and domestic economy, said MARC.

“Breaking it down, on a six-month moving average basis, growth of loan applications rebounded from -7.5% in March 2013 to 11.7% in March 2014 while growth of loan approvals improved from -6.4% in December 2012 to 4.2% in March 2014.”


The improvements were primarily attributed to the sharp rebound in the applications and approvals of loans for the purchase of residential properties.

MARC also noted that the stable labour market, rising income level and the relatively accommodative monetary stance have partly contributed to rising household debt.

Malaysia’s trade performance since the second half of 2013 will likely push up the headline growth rate in 2014 more than expected, said MARC, adding that household financial assets will likely rise in tandem with a stronger pace of nominal gross domestic products growth this year.

“The positive aspect of Malaysia’s household debt is that it is mainly backed by strong assets as they are largely comprised of residential property loans. And the positive outlook of the property market helps mitigate some of the risks.”

This article first appeared in The Edge Financial Daily, on May 27, 2014.


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