KUALA LUMPUR: Bank Negara Malaysia’s (BNM) latest guidelines on lending policies to encourage responsible financing and to make the lending process more transparent are not expected to have an adverse impact on loan growth.
“It should have some impact, but not significant,” said an analyst with Maybank IB Research.
“At the end of the day it really depends on the extent the banks meet the new requirements. It is still too early to quantify the results of the BNM announcement,” the analyst said, adding that the guidelines are meant to encourage prudent lending practices by banks.
Under the revised lending guidelines released by BNM last week, which are viewed as more stringent, the debt service ratio of a loan applicant is calculated based on net income rather than gross income. This means the income of the applicant is based on his or her return after deductions for tax and contribution to the Employees Provident Fund (EPF).
The new loan rules apply to mortgages, auto, share financing and personal loans and will be effective on Jan 1.
Most analysts remain neutral on the impact of the guidelines on the banking industry, according to various research reports. Some have even reported that banks are already practising prudent lending practices.
HwangDBS Vickers Research Sdn Bhd said in its report on Monday: “We believe banks are already practising prudent lending, taking into consideration the necessary risk-reward of the loan. Testimony to this are current retail banking non-performing loan (NPL) ratios, which are currently low.”
OSK Research had a similar view in its report on Monday, saying that some banks could have already started to adjust their debt service ratio over the past few months after the plan to tighten lending policies was first mooted last July and discussed by BNM and industry players.
“The decline in industry mortgage approval rates since June 2011 is an indication that banks may have already been nudging down their debt service ratio computation to preempt this latest ruling,” OSK’s report said.
Although most research reports indicate that the guidelines won’t have a substantial effect on the loan growth, CIMB expects the BNM guidelines to “drag down loan growth”.
“Through the new guidelines, BNM is sending a clear signal to financial institutions that they need to be more prudent in lending to the consumer segment. This will lead to more stringent loan approval, resulting in slower loan growth next year,” it said in its report on Monday.
Before the announcement of the guidelines, analysts were already expecting loan growth to slow down next year. The Maybank analyst said the loan growth projection for FY12 is 8.6% lower than the projection for FY11, which was 12.1%.
Loan growth has already seen a slowdown this year with a lower net interest income for the banks, which released their financial results last week.
Maybank, CIMB, Alliance Financial Group and AMMB posted moderate year-on-year (y-o-y) increases.
CIMB’s net interest income grew by a modest 0.2% y-o-y from RM1.659 million to RM1.662 million. Net interest income growth the year before was a higher 1.51%.
The Maybank analyst commented that while household loans may decrease next year, they will be buffered by corporate demand from financing Economic Transformation Programme projects, which are set to roll out next year.
Maybank, CIMB and OSK had “neutral” calls on the banking industry, and RHB maintained its “underweight” recommendation.
This article appeared in The Edge Financial Daily, November 23, 2011.
“It should have some impact, but not significant,” said an analyst with Maybank IB Research.
“At the end of the day it really depends on the extent the banks meet the new requirements. It is still too early to quantify the results of the BNM announcement,” the analyst said, adding that the guidelines are meant to encourage prudent lending practices by banks.
Under the revised lending guidelines released by BNM last week, which are viewed as more stringent, the debt service ratio of a loan applicant is calculated based on net income rather than gross income. This means the income of the applicant is based on his or her return after deductions for tax and contribution to the Employees Provident Fund (EPF).
The new loan rules apply to mortgages, auto, share financing and personal loans and will be effective on Jan 1.
Most analysts remain neutral on the impact of the guidelines on the banking industry, according to various research reports. Some have even reported that banks are already practising prudent lending practices.
HwangDBS Vickers Research Sdn Bhd said in its report on Monday: “We believe banks are already practising prudent lending, taking into consideration the necessary risk-reward of the loan. Testimony to this are current retail banking non-performing loan (NPL) ratios, which are currently low.”
OSK Research had a similar view in its report on Monday, saying that some banks could have already started to adjust their debt service ratio over the past few months after the plan to tighten lending policies was first mooted last July and discussed by BNM and industry players.
“The decline in industry mortgage approval rates since June 2011 is an indication that banks may have already been nudging down their debt service ratio computation to preempt this latest ruling,” OSK’s report said.
Although most research reports indicate that the guidelines won’t have a substantial effect on the loan growth, CIMB expects the BNM guidelines to “drag down loan growth”.
“Through the new guidelines, BNM is sending a clear signal to financial institutions that they need to be more prudent in lending to the consumer segment. This will lead to more stringent loan approval, resulting in slower loan growth next year,” it said in its report on Monday.
Before the announcement of the guidelines, analysts were already expecting loan growth to slow down next year. The Maybank analyst said the loan growth projection for FY12 is 8.6% lower than the projection for FY11, which was 12.1%.
Loan growth has already seen a slowdown this year with a lower net interest income for the banks, which released their financial results last week.
Maybank, CIMB, Alliance Financial Group and AMMB posted moderate year-on-year (y-o-y) increases.
CIMB’s net interest income grew by a modest 0.2% y-o-y from RM1.659 million to RM1.662 million. Net interest income growth the year before was a higher 1.51%.
The Maybank analyst commented that while household loans may decrease next year, they will be buffered by corporate demand from financing Economic Transformation Programme projects, which are set to roll out next year.
Maybank, CIMB and OSK had “neutral” calls on the banking industry, and RHB maintained its “underweight” recommendation.
This article appeared in The Edge Financial Daily, November 23, 2011.
