Investment Highlights

- On Friday, Bank Negara Malaysia announced 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 earlier measures introduced since 2010 to promote a sound and sustainable household sector.

- The measures include:- (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; and (3) Prohibition on the offering of pre-approved personal financing products.

Comments

- BNM had announced a set of macro-prudential measures on Friday in order to help mitigate the impact of rising household debt.

- Note that Malaysia’s household debt-to-GDP ratio came in at 80.5% in 2012, unchanged from 2011 while bank lending to households accounts for about 82% of total borrowings last year.

- The healthy labour market condition has augured well for the domestic economy spurred by consumer spending. However, a willingness to spend could potentially trigger an escalation in household debts going forward.

- Separately, the speculation on the removal of the Developer Interest-Bearing Scheme (DIBS) soon could accelerate property transactions in the near-term; drive the demand for mortgage loans temporarily; and at the same time cause an increase in household debt.

- We do foresee a downside risk to economic growth stemming from the slowdown in domestic demand due to the imposition of these new lending guidelines. Private consumption will probably be hampered in 3Q and 4Q due to the new lending guidelines by BNM. However, slower loan growth in the near term is compensated by healthier credits within the system in the longer term.

- As a recap, broad money supply M3 remains healthy at 9.5% in May (April: +8.2%) on account of net disbursements of loans to the private sector, net foreign inflows, and higher net claims on the Government. Nevertheless, we note that credit growth stumbled to a 40-month low in May as loan growth eased further. Business loan indicators remain lacklustre suggesting a continued moderation in loan growth in June.

- Thus, 2Q13 GDP could potentially be boosted by resilient domestic demand before a slowdown in 2H13. Based on our quarterly projection, we expect GDP to grow by 4.9% in 2Q13 backed by an aggregate domestic demand growth of 9.9%. In 1Q13, GDP had advanced by 4.1% while the aggregate domestic demand surged by 8.2% YoY.

- As such we do not anticipate monetary policy easing for Malaysia in the forthcoming MPC meetings for 2013, considering the concerns over household credit that continues to grow steadily. Ahead of the monetary policy meeting on July 11, we expect the benchmark interest rate to be retained at 3.00%.

Source: AmeSecurities