- New measures for the household sector. Bank Negara Malaysia (Bank Negara) has announced on 5 July 2013, the implementation of a set of measures aimed at avoiding excessive household indebtedness and to reinforce responsible lending practices by key credit providers. These measures, which take effect immediately, complement the earlier measures introduced since 2010 to promote a sound and sustainable household sector. The measures are:- (1) Maximum tenure of 10 years for financing extended for personal use; (2) Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties; (3) Prohibition on the offering of preapproved personal financing products. The measures were different from the highly anticipated new guidelines to curb on developers’ interest bearing scheme (DIBS), which we understand has not been released yet.

- Almost all financial institutions fall within the new rulings. These measures are issued pursuant to section 31(1)(a) of the Central Bank of Malaysia Act 2009 and apply to all financial institutions regulated by Bank Negara, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, Malaysia Building Society Berhad and AEON Credit Service (M) Berhad. This is to ensure consistency in financing practices across all the key credit providers.

- We expect some impact to new loans. While there is no breakdown of new loans that are given out on longer tenures, we expect some impact to new loans as higher property prices in the recent past is likely to have led to borrowers stretching the tenures of loans to increase affordability. Overall, we expect to trim our loans growth forecasts pending further clarifications from the companies.

- Personal loans ruling likely to affect MBSB. For MBSB, we understand that the company’s average tenure of personal loans stretch from between 10 years to 20 years. With the latest news, we expect to downgrade our personal loans growth forecasts for MBSB pending further confirmations from the company. However, we do not expect major downgrade given that our new growth forecast is at the lower end compared to the company’s overall loan disbursement target. The new rulings do not detract from our positive stance on MBSB, as we anticipate positive impact from its migration to full banking status under the Financial Services Act.

- Downgrade sector to Neutral. Our sector rating is now downgraded to NEUTRAL as we have just downgraded CIMB to HOLD from BUY. Our buys are now AFG, MBSB and RHB Cap. Our top pick is nowl MBSB. We expect some share price weakness on MBSB based on the latest news but would view any share price weakness as an excellent opportunity to buy.

Source: AmeSecurities