KUALA LUMPUR: With Bank Negara Malaysia (BNM) reining in household debt and tightening credit to consumers, non-banking financial institutions are gaining the upper hand by boosting lending and gaining market share from traditional banks.
In view of household debt touching 76% of the country’s GDP, BNM has been tightening credit to consumers by targeting credit cards, housing loans as well as car loans.
This has resulted in overall loan growth for the banking industry decelerating to 9% in the first nine months of last year from 10.1% in the previous corresponding period.
Taking up the slack and benefiting from tighter credit at banks are the non-banking financial institutions, where consumer lending remains robust.
Non-financial institutions such as Malaysian Building Society Bhd (MBSB) and AEON Credit Service (M) Bhd do not fall under the purview of BNM’s Banking and Financial Institutions Act or Bafia.
As these institutions are not governed by BNM’s stricter credit guidelines, analysts said they are likely to continue chalking up higher than the banking average loan growth. However, they are also concerned if a rapid rise in loan growth in a slowing economy leads to asset quality issues over the longer term.
Among the non-bank financial institutions, MBSB has been leading the pack — not only in terms of size and growth, but also in transforming itself from a loss-making building society into a major consumer financier.
Last night, MBSB announced that net profit for its full year ended Dec 31, 2011 rose 122% to RM325.43 million from RM146.03 million the year before on significant growth in its loans base.
Net loan, advances and financing stood 42% higher at RM15.2 billion as at Dec 31 compared with RM10.7 billion at end-2010, while deposits grew 29% to RM13.5 billion from RM10.5 billion.
An analysis of its loan segmentation revealed that gross loans for personal financing grew 118% to RM8.72 billion from RM3.99 billion in the nine-month period.
Personal financing accounted for 49% of MBSB’s gross loans of RM17.8 billion, before an allocation of RM2.62 billion in allowance for impairment.
MBSB’s loan book is about two thirds the size of Alliance Banking Group Bhd, the country’s smallest banking group.
However, MBSB’s ratio of non-performing loans (NPL) stood at a relatively high level of 9%, compared with the banking industry’s average of 1.8% in December 2011.
Still, it is a substantial decline from the NPL ratio of 23.2% that the company recorded in 2008. It has also been trending down from 16% at end-2010 and 11% in Sept 2011.
Between end-2010 and end-2011, gross NPLs declined from RM4.91 billion to RM3.14 billion, while net NPLs (after provisions) fell from RM1.68 billion to RM1.29 billion.
“Loan restructuring and the execution of settlement agreements of several major accounts have brought down the NPL over the years,” MBSB head of corporate planning and communications Azlina Rashad recently told The Edge Financial Daily.
The company, which provides personal financing to government servants, will rely more heavily on its other segments for future earnings.
“The key asset driver for the past three years has been our personal financing product, which makes up about 40% of the company’s total loan assets. However, in the next three years we hope to achieve a more balanced portfolio where our personal financing, home mortgage and corporate loans each contribute a third,” said Azlina.
MBSB has also identified bridging financing of government contracts as a major new growth area.
AEON Credit, which has a loan portfolio merely a 10th of MBSB’s, also recorded a strong growth in recent years.
Its short-term loan financing portfolio increased by 26.3% in a span of nine months from RM701.13 million on Feb 20, 2011 to RM885 million on Nov 20.
Long-term financing receivables (for loans extended beyond a year), meanwhile, rose 26.8% from RM407.38 million to RM516.39 million in the same period.
Unlike MBSB, AEON Credit’s NPL ratio increased in the past few years due to high growth in its personal financing and credit card businesses.
The company’s NPL ratio has fluctuated between 1.63% and 1.94%, which is still low even by banking standard norms. For the nine months to Nov 20, 2011, it rose to 1.93% from 1.83% the previous year, according to a report by OSK Research.
That, however, has not affected AEON Credit’s profitability as the company posted a 54.3% jump in net profit to RM67.89 million for the nine months compared with RM42.97 million previously.
“Our total consumer financing portfolio of about RM1.4 billion represents a small share of the consumer credit in Malaysia, so our smaller asset base has contributed to the higher growth rate (of our portfolio),” said a representative of the company.
The company caters to an “under-served” consumer segment while a majority of its banking peers serve middle to higher income brackets.
An analyst with Hwang DBS Vickers said AEON Credit’s high growth will taper off in the medium term, as the optimistic outlook for the country’s economy begins to moderate.
“I think the growth in personal financing has a direct correlation with the underlying economic outlook, which is buoyant as a rate of 4% to 5% is expected for Malaysia’s GDP. However, I don’t think this kind of growth is sustainable, it would moderate after hitting the top,” said the analyst.
This article appeared in The Edge Financial Daily, February 3, 2012.
