Malaysia’s household debt rise a concern

By DALJIT DHESI  daljit@thestar.com.my

PETALING JAYA: While not an imminent danger, the level of household debt is of concern and warrants close monitoring, RAM Ratings head of financial institution ratings Wong Yin Ching said,

The nation’s household debt as a percentage of gross domestic product (GDP) had risen to 77% as at end-2011 compared with 69% at end-2006, and its household debt-to-GDP ratio was considered high when compared with other countries in the region, especially in relation to GDP per capita.

Wong was speaking to StarBiz after the release of the rating agency’s Banking Bulletin 2012. Home loans remained the largest component, contributing about 45% of the total household debt, she added.

However, unsecured financing in the form of personal loans and credit-cards had been growing rapidly, accounting for about 15% and 5% of total household debt, respectively.

Development financial institutions, cooperatives and building societies that offer personal financing facilities to civil servants under salary-deduction schemes contributed to the bulk of the growth, she noted.

“We view positively Bank Negara’s various pre-emptive measures implemented since late 2010 to rein in growth in household debt and safeguard the soundness of the financial system.

“On top of the tighter measures on residential property financing, stricter guidelines have also been implemented on credit cards, such as increasing the income eligibility criteria.

“We do not discount additional prudential regulations to be imposed in future,” Wong said.

Effective Jan 1, banks are required to use net income calculation method instead of gross income when computing debt-service ratio.

Wong added that unemployment rate was still relatively low at 3% and the credit quality of household sector was also healthy, with a low gross impaired-loan ratio of 1.8% as at end-January 2012 (end-2010:2.3%).

Nevertheless, she said the debt-servicing ability of households in the lower-income segment might be more vulnerable to economic down-cycles, greater variability in income and inflationary pressures.

On loan growth, RAM Ratings expects the overall banking system’s loan growth to taper to about 8% to 9% this year, after clocking in a strong 14% expansion in 2011. This is supported by a projected 4.6% real GDP growth this year, which is slightly lower than the 5% in 2011.

Private investments, she said were expected to remain strong, although a weakening in global demand would have some bearing on export performance.

Wong anticipates the central bank to remain accommodative in its monetary policy by maintaining the overnight policy rate at 3% with a downside bias in 2012, as preserving growth momentum would take precedence over curbing inflationary pressures.

While a more moderate household loan growth was anticipated due to the prudential regulations introduced, she added this would be balanced by stronger financing demand from the commercial and corporate sector from the rollout of projects under the Economic Transformation Programme and 10th Malaysia Plan.

For non-performing loans this year, she said the industry’s gross impaired-loan ratio was expected to be kept healthy this year, with a slight uptick to about 3% from the current all time low level of 2.7%.

“In terms of capitalisation, all the domestic, all the domestic banks were well poised to meet the new capital requirements under Basel III, of which the implementation would be phased in from 2013,” she added.

Although these new capital measures would elevate banks’ funding costs, which may in turn be passed on to consumers, it would ensure the banking sector was safeguarded against unexpected shocks, Wong said.

As at end-January, the banking system’s capitalisation was strong with a tier-1 risk-weighted capital adequacy ratio of 12.9%.

Banks’ profitability, she said had been on a steady rise over the last couple of years on the back of strong loan growth, benign loan impairment charges and growing fee income. However, net interest margins (NIMs) had been under pressure due to stiff price competition, particularly in certain loan segments such as residential mortgages.

NIM is a measure of the difference between interest income generated by banks and interest paid out to depositors.

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Politician Integrity the order of the day

Ceritalah By Karim Raslan

Aspiring leaders have to learn that to be elected into office is to be dutybound to one’s constituents — to be honest, scrupulous and morally good.

WOMEN, Family and Community Develop­ment Minister Datuk Seri Shahrizat Abdul Jalil has been a dynamic and forward-looking leader – a stand-out among the Umno line-up – and they will sorely miss her talents.

However, it would be incorrect to think that what she has gone through is an isolated or a one-off case. Nor is her fall wholly attributable to PKR’s director of strategies Rafizi Ramli. The young former chartered accountant is merely an agent of change in the National Feedlot Centre (NFC) saga.

In reality, the unravelling of the NFC debacle reflects deeper, global trends brought about by technology and social media – most notably the fact that we have entered the Age of Full Disclosure.

 Dynamic leader: It would be incorrect to think that what Shahrizat has gone through is an isolated or one-off case.

In this respect, Julian Assange and WikiLeaks are emblematic of these changes.

The Age of Full Disclosure has been a rude shock for Malaysia’s political elite.

In the past, Malay bangsawan culture – the deference and respect for figures of authority – emboldened our leaders to say one thing and do another. This is no longer acceptable or sustainable.

From now on, the Malaysian public expects leaders to do as they say. The unquestioning trust and adoration that once existed have disappeared. Technology has also freed up the mind.

Moreover, Malaysians are no longer fearful of the leaders as the last vestiges of the kerajaan ethos are swept away.

Of course, as Assange has discovered, being a whistle-blower is a very lonely business. Everyone is afraid of the man (or woman) who insists on telling the truth, especially when it’s highly compromising and/or embarrassing.

The point is that surviving in “the new political landscape” and “engaging the social media” doesn’t just mean setting up Facebook and Twitter accounts as well as hiring cyber troopers to blog for you.

It also means realising that information can no longer be controlled, and modifying your behaviour accordingly.

Malaysian politicians have to realise that nothing is sacred and nothing can be hidden anymore. The most seemingly innocuous comment or odd scrap of paper can, and will, be dredged up against you.

I’ve already said that it’s no longer possible for our leaders to present one message to another community and then say something else to the next.

So what is the solution for politicians?

It’s quite simple: Don’t run for office if your affairs (and those of your family and close associates) are not in order. Probity is the order of the day. Aspiring leaders have to learn that elected office is to be dutybound to one’s constituents, not a means to enrich themselves or their families.

This in effect forces politicos to be what we’ve always wanted them to be: Honest, scrupulous and moral in the public sphere. The only difference is that we, the people, now have the power to enforce this.

Indeed, the NFC scandal heralds a long-awaited power shift in Malaysia, whereby our elite families no longer monopolise the power to set agendas or deflect issues. Technology has inverted our social pyramid.

As I said, the double standards that Malaysia’s rich and powerful once enjoyed is no longer as pervasive as before. If they abuse the public trust and misuse the country’s money, the people can now turn on them with a vengeance.

It’s no longer enough for our leaders to say: “Trust me; I know what I’m doing and what’s best for you all”.

The continued fallout over the UK phone-hacking scandals and Rupert Murdoch’s travails should also be a warning to media practitioners that they will be subject to the same scrutiny as the politicians.

They too will be called to account if their ethics are not up to scratch or if they toy with the truth. At this rate, this tukang cerita would be better off as a rice farmer! We have been served a severe, but very timely, warning.

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