Investment Highlights

BNM released the financial stability review report for 1H19 and held a briefing yesterday. Below are the key highlights:

• The banking sector remained resilient despite a slowdown in global growth, volatile financial markets, softer property market conditions and still elevated household debt levels.

• 1Q19 saw some recovery in the residential property market. Both volume and the value of housing transactions improved by 7.5% YoY and 10.6% YoY respectively. These were largely driven by demand for affordable houses, particularly properties priced below RM300,000.

• On the non-residential property market, transactions for commercial property rose by 25.1% in 1Q19 (4Q18: 16.3%), underpinned by higher completed deals for shops. Nevertheless, an oversupply of office space and commercial complexes (OSSC) continued to persist. Vacancy rates for OSSC and retail space per capita remained higher in major cities domestically compared with regional peers with a substantial incoming supply of shopping complexes. We understand that banks remained watchful of the office space and commercial complex segment.

• Annual growth of household debts climbed to 5.1% in 1H19 vs. 4.7% in 2018 (2017: 4.9%) contributed largely by a faster pace of loans for purchase of residential property and securities (mainly unit trust funds). For households, growth in financial assets of 6.8% YoY continued to outpace the rate of expansion of their debts. The ratio of household debt-to-GDP remained elevated, inching higher to 82.2% in 1H19 compared to 82.0% in 2018.

• The financial asset-to-debt and liquid financial asset-to-debt ratios were stable at 2.2x and 1.5x respectively for the household sector in 1H19, thus reflecting adequate financial buffers.

• The share of borrowings by those with income lower than RM3,000 per month (vulnerable borrowers) to the total household debts continued to decline to 18.5% (2018: 19.3%; 2016: 21.9%). The leverage ratio of households under this segment increased slightly to 8.9x in 1H19 (2018: 8.8x) due to housing loans which were made available through numerous loan assistance schemes.

• The debt servicing ratio for 70% of the newly approved household loans continued stay below 60.0%. Meanwhile, the proportion for debt of borrowers with negative financial margins to total household debt, taking into consideration likely losses from default (debt-at-risk) remained low at 5.2%.

• Overall, the asset quality of household loans continued to be stable with a GIL ratio of 1.3% in 1H19 (2018: 1.2%). However, there remains some pockets of risk, particularly housing loans for purchase of properties above RM500,000 as well as retail borrowers’ whose incomes are unstable in servicing their debts.

Source: AmInvest Research - 19 Sept 2019