source: [thestar online]
Alliance Research turns cautious on Malaysian banking sector
KUALA LUMPUR: Alliance Research is turning cautious on the Malaysian banking sector as the authorities implement measures to contain the growth of household debt.
It said on Tuesday that following the Budget 2014 announcement of several measures to curb speculation in the property market, Bank Negara Malaysia (BNM) had on Nov 15 issued a new circular.
The circular, entitled “Measures to Promote Sustainability of the Property Market” was to ensure the long term sustainability of the property market.
“These new measures were more onerous than initially anticipated following announcement of DIBS (developer interest bearing scheme) prohibition recently.
“We will be reviewing our 9% loans growth target for 2014 as we are turning cautious on the banking sector since these measures, together with potential rate hikes by BNM, fiscal tightening by the federal government and subsidy rationalisation programme next year, could (1) further drag loan growth momentum in the retail segments, (2) temporarily lead to rising credit cost, and, (3) dampen investor sentiments on the banking sector,” it said.
Alliance Research maintained its Overweight recommendation for the banking sector for now, pending review.
On the BNM circular, the research house pointed out it had: (1) further reinforced restriction on granting of interest capitalisation scheme (ICS), including DIBS, for the purchase of properties, and (2) mandated the use of “net selling price”, rather than “gross selling price” to determine loan-to-value (LTV) ratio.
Although the guidelines on prohibition of DIBS is not a surprise following its announcement during Budget 2014, the new rule on “net selling price “ basis for determining LTV ratio is negative surprise to us.
Alliance Research said while it is difficult to gauge the impact on banks going forward, the fact that this new rule applies to all property financing, including first time home buyers, means that property buyers’ affordability will be affected and this will lead to lower property loans growth.
The circular was also the third attempt by the authorities to contain the growth in household debt since 2H this year.
“We currently project next year loan growth target of 9%, supported by stronger growth of business loans stemming from the ongoing implementation of Entry Point Projects (EPP) under the government Economic Transformation Plan (ETP), which is expected to fill up the vacuum left by the moderation in household loans.
“However, in light of the more onerous property lending curb, we will be reviewing this target,” it said.
