BNM Annual Report 2011: Malaysian household debt growth slows in 2011

KUALA LUMPUR (March 21) : Malaysian household debt growth slowed to 12.5% in 2011 versus 13.7% a year earlier following more stringent measures by the central bank to curb speculation in the real estate market.

Bank Negara Malaysia (BNM) said the measures implemented since 2010, had shown results as the number of borrowers with more than two outstanding housing loans moderated and registered a significantly lower growth of 2.9% in 2011versus 14.9% in 2010.

In its 2011 Financial Stability and Payment Systems report on Wednesday, it said: “The credit exposures to the household sector continue to be manageable with some emerging signs of moderation in household borrowing, particularly in the second half of 2011.

“The financial position and debt-servicing capacity of households remain sound at the aggregate level, supported by higher income and favourable employment conditions,” BNM said.

According to BNM, the latest household debt numbers as a proportion of the country’s gross domestic product translates into a ratio 76.6% compared to 75.8 % in 2011.

Loans for the purchase of residential PROPERTIES [] accounted for the single largest chunk of 45% of household house debt in 2011, it said.

BNM said while home loan growth slowed to 12.7% in 2011 from 12.8% in the preceding year, house prices had continued to rise at an annual average of 5.9%, on a quarterly basis, in the last three years. This compares with the average of 3.9% for the period of 2001 till the third quarter of 2011.

It said bulk of the loans dished out for the purchase of residential units was for those priced over RM250,000 each.

On the whole, BNM said household balance sheets generally exhibited strong financial buffers against adverse changes in asset values, interest rates and income levels. However, the central bank cautioned that borrowers with a monthly income of RM3,000 and below and living in urban centres were more vulnerable to “potential income shocks”.

This is because this segment of borrowers had substantial debt obligations with limited buffers to counter any loss of income, or price increases.

“Given the high dependence on income to sustain consumption, lower-income households, in general, are more susceptible to income shocks and to some extent, price shocks.

“Outstanding borrowings of individuals in this income group accounted for about 23% of banks’ exposures to households or 12.7% of banking system loans, with the majority of borrowers’ loan facilities concentrated in vehicle and personal financing,” BNM said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

BNM Annual Report 2011: External risks to dictate domestic financial landscape

KUALA LUMPUR (March 21): External risks emanating from the European sovereign debt crisis and the US fiscal position, are deemed crucial threats to Malaysia’s financial stability in 2012, according to Bank Negara Malaysia (BNM).

In its Financial Stability and Payment Systems Report issued on Wednesday, BNM said uncertainties from both regions will continue to weigh on global market sentiment and economic growth.

“This in turn will continue to adversely affect the balance sheets and funding of global banks, hampering efforts to strengthen the financial systems in the advanced economies.

“Risks to domestic financial stability in 2012 are expected to continue to be mainly externally driven,” BNM said.

According to the central bank, these external uncertainties can lead to higher levels of domestic market volatility and continued challenges in foreign currency funding.

Moreover, weakness in advanced economies, which are also major importers of goods from emerging markets, could dent Malaysia’s export performance and the profitability of Malaysian companies, BNM said,.

Weaker corporate earnings in local firms may, in turn, lead to higher credit risks for domestic banks should borrowers fail to fulfill their debt obligations, according to BNM.

The central bank is however optimistic that the country’s financial sector is well positioned to mitigate the impact from such situation. The optimism is based on the anticipation that credit risk for Malaysian lenders will be manageable this year against a stable employment and income outlook within a sustained domestic demand backdrop, according to BNM.

The central bank said it will improve its ability to identify “second-order contagion risks that can affect the financial sector” and ensure domestic lenders exercise prudence in disbursing loans to consumers.

“Aside from maintaining a heightened vigilance over banks’ exposures to households, the bank will also increase its scrutiny on the quality of banks’ business credit exposures and financing to the commercial property sector,” BNM said.

Household debt is a crucial concern. The regulator said it plans to strengthen its emphasis on ensuring that household debt is at reasonable levels via the proper assessment of potential borrowers’ ability to take on new loans.

“The bank will continue to actively monitor the financial position of households, coordinating closely with other relevant authorities in implementing appropriate measures to ensure that the resilience of the household sector is preserved.

“While the foundations for financial stability is well entrenched, Malaysia will strive to improve further in safeguarding financial stability in a highly dynamic domestic and external environment,” BNM said.

On a global scale, the regulator said it hopes to strengthen its links with other central banks to jointly undertake proactive measures to counter risks in the broader financial backdrop.

Another crucial highlight is BNM’s aim to further strengthen financial market infrastructures especially payment and settlement systems to support rising volume of cross-border and multi-currency transactions.

The regulator also hopes to collaborate with other authorities to improve access to, and the transparency of, information on over-the-counter derivatives exposures.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

BNM Annual Report 2011: Foreign Investments in manufacturing sector to moderate

KUALA LUMPUR (March 21): Foreign investments in the manufacturing sector may moderate as foreign firms are expected to turn more cautious following the heightened uncertainty in the global economy, Bank Negara Malaysia (BNM) said.

However, the central bank said this could be offset by foreign direct investments (FDIs) in new growth areas including renewable energy, and advanced electrical and electronic (E&E) products, the oil and gas sectors and in the services sector.

In its annual report released on Wednesday, it said foreign direct investment (FDI) inflows, which began to soften in the second half of 2011, were expected to moderate further in 2012.

BNM said the decline in the FDIs were due to weak external demand and greater uncertainty in the global economic environment.

While there has been higher levels of foreign manufacturing projects approved by the Malaysian Investment Development Authority (MIDA) in 2010 and 2011 (RM29.1 billion and RM34.1 billion respectively), the central bank said investments in the manufacturing sector might moderate as foreign firms were expected to turn more cautious following the heightened uncertainty in the global economy.

It noted that FDI into new growth areas such as renewable energy, and advanced E&E products such as light-emitting diodes and test equipment was expected to continue given the growing global interest in green TECHNOLOGY [].

Foreign investments in the O&G sector were projected to remain firm, supported by increased government incentives to the sector.

The liberalisation of several services sub-sectors under the Economic Transformation Programme would also contribute to further inflows of FDI into the services sector.

The trend in direct investment abroad (DIA) by Malaysian companies is likely to mirror that of the FDI, although by a lesser degree.

BNM said this was mainly due to the diversified profile of overseas investment in terms of economic activity as well as the investment destination.

DIA was expected to be channeled mainly into the services and O&G sectors, with a continued focus on high-growth markets in the region.

The central bank said despite the highly challenging global economic conditions, Malaysian companies are anticipated to continue venturing abroad to seek access to new and larger markets.

“Over the medium term, this regional and global expansion will contribute in creating more competitive and globalised Malaysian companies,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

BNM Annual Report 2011: Fiscal deficit to narrow to 4.7% in 2012

KUALA LUMPUR (March 21): Bank Negara Malaysia (BNM) expects the fiscal deficit to narrow further from 5.0% of gross domestic product (GDP) in 2011 to 4.7% of GDP in 2012, underlining the government’s commitment to fiscal consolidation.

It said on Wednesday the government faces the challenging task of balancing between fiscal consolidation and to support initiatives to transform the country into a high-income economy.

“In the medium-term, the government will remain committed to fiscal consolidation. A successful implementation of the ETP (Economic Transformation Programme) and all other reform initiatives are expected to ensure sustainable growth which will enhance tax revenues, thus contributing to the efforts to strengthen the fiscal position of the government,” it said.

BNM said revenue collection was expected to improve to RM186.9 billion due to better tax administration and higher compliance in tax submission and collection.

Total expenditure, BNM added, would continue to support of growth with an allocation of RM181.6 billion for operating expenditure and RM49.2 billion for development expenditure.

Development expenditure would be channeled for projects and programmes under the second rolling plan (RP2) of the 10th Malaysia Plan (10MP) including transformation initiatives under the National Key Result Areas (NKRAs), National Key Economic Areas (NKEAs) and Strategic Reform Initiatives (SRIs)

“The government will continue to finance the fiscal deficit from domestic sources, mainly through the issuances of Malaysian Government Securities (MGS) and Government Investment Issues (GII), given the high domestic savings and the ample liquidity in the financial system,” it said.

As for the monetary policy in 2012, BNM said the Malaysian economy entered 2012 with increasing downside risks to growth amid softening inflationary pressures domestically.

BNM said the monetary policy would continue to operate in a complex global environment characterised by slower growth, rising uncertainties and increased volatility in the financial and commodities markets amid high liquidity in the international monetary system.

“Monetary policy in 2012 will focus on ensuring the sustainability of economic growth in an environment of price stability. Emphasis will also be placed on ensuring monetary policy remains appropriate to avoid the build-up of financial imbalances,” it said.

BNM said despite the highly challenging external environment, the fundamentals supporting the economy remain intact.

It said the Malaysian economy was expected to remain resilient and to grow within the range of 4 - 5% in 2012.

“Domestic demand will continue to be the anchor for growth. Private sector economic activity will be sustained, underpinned by stable employment conditions and a favourable outlook for the domestic- oriented sectors.

“This will be further reinforced by public sector spending and investment via the ETP and policy initiatives announced during the 2012 Budget such as the one-off financial assistance to low and middle income groups, upgrading of schools, hospitals and basic rural infrastructure and the CONSTRUCTION [] of public housing,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

BNM Annual Report 2011: Economy to expand 4% to 5% in 2012

KUALA LUMPUR (March 21): The economy is expected to grow at between 4% and 5% in 2012, with domestic demand continuing to underpin growth, according to the Bank Negara Malaysia annual report 2011.

The slower growth would be amid more challenging external environment and the central bank expects growth in both private consumption and investment to soften in 2012, according to the report which was released on Wednesday.

“The GDP growth projection of between 4% and 5% in 2012 is premised upon the expectation of a moderation in global growth and the timely and full implementation of measures announced in the 2012 Budget,” it said.

BNM’s GDP projection was lower than the government’s earlier projection of between 5% and 6% for 2012 announced in the 2012 Budget.

Several risks confronting the economy were deterioration in the eurozone sovereign debt crisis and much slower growth in Malaysia’s major trading partners.

However, should growth in the advanced economies turn out to be stronger than expected, there was some upside potential to domestic growth in 2012.

The central bank said the authorities had sufficient policy flexibilities and tools to support the domestic economy and manage the international challenges, should conditions warrant it.

BNM added some measures announced in the 2012 Budget were expected to provide support to private consumption. These include the one-off financial assistance to low- and middle-income groups and the higher increment of public sector wages.

It expected private investment to be supported by continued investment by domestic-oriented industries and the ongoing implementation of projects under the Economic Transformation Programme (ETP).

It said the public sector would remain supportive of growth in 2012, with higher capital expenditure by both the Federal Government and the non-financial public enterprises (NFPEs).

The implementation of the Special Stimulus Package through Private Financing Initiative announced in the 2012 Budget would provide further impetus to real activity during the year.

Domestic demand

On the demand side, BNM said domestic demand would continue to be the main driver of growth in 2012, with the rate of expansion remaining resilient at 6.6% (2011: 8.2%).

It said the weaker global growth outlook was likely to affect income and capital expenditure in the external-related sectors of the economy, thus constraining the overall momentum in private consumption and investment.

However, the public sector was expected to remain supportive of growth, driven by higher capital expenditure by both the Federal Government and the NFPEs.

Private sector expenditure was expected to grow at a slower pace of 8.2% (2011: 6.6%)

Private consumption was expected to remain strong in 2012 at 6.2% , though slightly lower that 2011’s 6.9%.due to a slight moderation of consumer expenditure. BNM said this was mainly attributed to moderating income in the private sector.

Private investment was expected to expand at a more moderate pace of 8.3% (2011: 14.4%).

“Continued investment by domestic-oriented industries is expected to mitigate the anticipated moderation in investment by export-oriented industries. The ongoing implementation of projects under the ETP will also augment private investment activity,” it added.

BNM said public consumption was expected to record only 0.2% (2011: 16.8%) mainly due to of a significant moderation in the expenditure on supplies and services as the government was expected to continue with its consolidation efforts.

However, public investment was expected to pick up strongly at 16.2% after contracting 2.4% in 2011 due to slower implementation of new 10MP projects then.

“Growth will be supported by higher Federal Government development expenditure and NFPEs’ investments in the mining and transportation sectors,” it said.

Supply side

On the supply side, BNM expected most sectors to continue to expand in 2012 but slower growth in global demand might adversely affect export-oriented industries in the manufacturing sector as well as trade-related industries in the services sector.

As for domestic oriented industries, the central bank expected this sector to remain firm, underpinned by resilient domestic demand conditions.

BNM expected the CONSTRUCTION [] sector to grow at 6.6% (2011: 3.5%), supported by the implementation of major infrastructure projects and the Special Stimulus Package.

The mining sector was expected to record positive growth of 0.6% from a contraction of 5.7% in 2011.

However, the agriculture sector was likely to record 3.8% growth (2011: 5.6%) mostly due to lower growth of both palm oil and natural rubber following the strong performance in 2011.

The manufacturing sector was expected to slow down to 3.9% (2011: 4.5%) due to the anticipated slower activity in the export-oriented industries.

The services sector was also expected to growth at a slower pace of 5.1% (2011: 6.8%), supported by consumer-related sub-sectors, which was likely to cushion the effects of slower trade-related activity during the year.

Headline inflation was expected to moderate in 2012, averaging between 2.5% and 3.0% due to a moderation in global commodity prices and the weaker global growth outlook.

On the external front, the current account surplus was projected to remain large at RM109.5 billion or 12.2% of gross national income (GNI).

BNM said gross exports were expected to grow at a slower pace in 2012.

Labour market conditions

On the labour market conditions, it expected the unemployment rate to increase to 3.2% of the labour force in 2012 (2011: 3.1%).

“Income growth in 2012 will be affected by the cautious economic outlook, which affects firms’ decisions on salary increments and bonus payments,” it said.

BNM said job creation was projected to be concentrated in the domestic-oriented sectors, particularly in the services and construction sectors, as domestic demand was expected to remain firm.

However, employment in the export-oriented sectors might be affected by the weakening external demand, it said.

The central bank said financial stability was expected to remain intact, underpinned by well-capitalised financial institutions which would continue to provide support for financial intermediation in the economy.

“Given the comfortable level of reserves and relatively low external debt, Malaysia is well positioned to manage volatile capital flows under the current environment of continued volatility in the international financial markets,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.