Downside risk to economic growth

PETALING JAYA (July 9, 2013): Bank Negara Malaysia's fresh lending curbs on personal loans and mortgages may hurt growth in the second half of this year on lower consumer spending, analysts said.

Source from (The Sun Daily): http://www.thesundaily.my/news/764397
Published: July 09, 2013

AmResearch said yesterday the economy is expected to expand 4.9% in the second quarter before a slowdown in the second half of this year. It foresees the "downside risk" to growth stemming from Bank Negara's latest round of credit restrictions.

"Private consumption will probably be hampered in the third and fourth quarters due to the new lending guidelines by BNM," the firm said.

Bank Negara on Friday announced a maximum tenure of 10 years for personal financing and a maximum of 35 years for property purchases. It also prohibits the offering of pre-approved personal financing products.

While the tightening will drag down consumer loan growth, analysts expect it to be offset somewhat by an expected recovery in business loan momentum.

Credit growth stumbled to a 40-month low in May, figures released by Negara earlier this month. Business loan application remained lackluster in May and some analysts believed that loan expansion would only pick up pace in July.

According to Public Investment Bank Bhd, loans growth continues to slow due to a combination of subdued business activity and a gradual scale-back in household loans which have seen rapid rises in recent months.

"Nonetheless, growth should average between 10% and 11% this year, marginally lower than 11.8% in 2012, mirrored by the slide in overall applications and approvals. With most banks continuing to vie for a greater slice of the lower-costing current and saving accounts (CASA) pie to mitigate overall margin erosions, competition within the industry will continue to be intense," it said.

Meanwhile, Public Investment Bank said speculation remained rife that BNM may impose further restrictions on the property sector, amongst which could be the removal of the Developer Interest-Bearing Scheme (DIBS) which if materialises, would be largely neutral to the banking sector in the shorter term as interest borne by the developer will be paid to the bank anyhow.

"But it will certainly impact growth from an expected reduction in transactions," it said.

However, the overall impact on banks' loan growth will not be significant because property loans with tenures of more than 35 years make up "a small percentage" of total loans, CIMB Research said.

It also estimated personal loans account for only about 5% of the industry loan base and contribute about 0.5% to the industry's loan growth of 9% and 13%.

"Margin compression and a rise in credit costs are concerns for 2013,'' CIMB Research said.

Alliance Research has maintained its overweight recommendation on the banking sector and its 2013 industry loan growth target of 10.5% on expectations of limited impact from the new guidelines.

However, it cautioned that unexpected macro prudential policies undertook by BNM coupled with on-going market speculations of the potential removal of DIBS by the regulator could dampen investors' sentiment of the banking sector in the near term.

"This could potentially lead to temporary price weaknesses of banking stocks," it added.