Top 3 local banks to benefit from new rules

KUALA LUMPUR (July 11, 2013): Moody's Investors Service expects Bank Negara Malaysia's new measures on lending criteria to be credit positive for the country's three largest local banks by total assets.

Source from (The Star Online): http://www.thestar.com.my/Business/Business-News/2013/07/12/Measures-to-benefit-3-banks.aspx
Published: July 12, 2013

Source from (The Sun Daily): http://www.thesundaily.my/news/768021
Published: July 12, 2013

It said with their dominant branch networks, the banks namely Malayan Banking Bhd, Public Bank Bhd and CIMB Bank Bhd will continue to have scale advantages that would help them price loans more competitively than their smaller peers.

The new measures introduced by the central bank reduces to 10 years from 25, the maximum tenure for personal loans, while reducing to 35 years from 45, that for residential and non-residential property loans.

There is also a prohibition on credit providers offering pre-approved personal loans.
"The shorter loan tenures will improve the quality of bank borrowers.

"Given that our rated local banks generally apply debt service ratios of 50%-70%, the higher periodic payments associated with a shorter loan tenure, will directly reduce the amount that banks lend to highly leveraged borrowers," Moody's said in a statement today.

The credit rating agency said the tighter credit requirements now increase the qualifying criteria for borrowers to secure new financing, particularly those with outstanding debt obligations and little cushion in their debt-servicing capacities, as well as new borrowers with weak credit profiles.

It said the new measures would help slow excessive debt accumulation by households and reduce the household sector's vulnerability to higher interest rates.

Household debts in Malaysia increased to 80.5% in 2012 from 60.4% in 2008.

"Importantly, the new measures will harmonise lending discipline among Malaysia's credit providers.
"This development is critical to limiting credit access to financially weak borrowers, particularly in the current context of low interest rates and intense competition among credit providers in the consumer segment," Moody's said. – Bernama