KUCHING: The new loan guidelines implemented by Bank Negara Malaysia (BNM) are to protect loan applicants and not to restrict growth, with a neutral impact on the already-prudent banking sector moving forward.
To recap, BNM was taking steps to ensure household debt did not go out of hand with new loan rules effective from January 1 next year covering mortgages, automotive loans, share financing (excluding securities margin financing) and personal loans (including overdraft facilities).
Tighter credit card measures were separately introduced in mid-March this year, which would take effect from January 1 next year as well.
The new rules were not intended to restrict growth but to set transparent parameters, including making clearer the implications to borrowers on their loan payments when base lending rates change.
The guidelines also required banks to make assessments of a borrower’s ability to afford loans based on a prudent debt service ratio as inputs to their credit decisions.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) analysts Lim Sue Lin and Hon Seow Mee outlined to The Borneo Post, “Appropriate enquiries into a prospective borrower’s income after statutory deductions for tax and Employees Provident Fund, and to consider all debt obligations, in assessing affordability, that is using net income rather than gross income should be used as a gauge.
“This would have a neutral impact and banks should be on prudent lending practices. These guidelines are not new as we believe banks are already practicing prudent lending taking into consideration the necessary risk-reward of the loan,” they pointed out.
Testimony to these practices was the currently low retail banking non-performing loan (NPL) ratios, with the residential properties segment dipping below three per cent and securities below one per cent. As at the third quarter of this year, household debt to gross domestic product (GDP) was at 77.6 per cent, with retail loans comprising 53 per cent of total loans as at September this year.
Vehicle financing (fromNov 18, 2011) would have a maximum tenure of nine years. From July 1 next year, borrowers would not be penalised for early settlement of loans and banks would only be allowed to charge processing costs of the loan.
“Impact of these new guidelines should be neutral to the banks in our view and ensures that athe sset quality of the segment remains manageable,” Hon summarised.
She revealed Alliance Financial Group Bhd as HwangDBS Research’s top pick for its scalable domestic franchise and non-interest income traction ensuring sustainable earnings and return-on-equity.
Among large caps, she picked Malayan Banking Bhd for its resilient transactional banking income and dividend yields.
The research house also liked Hong Leong Bank Bhd for the synergies the bank would extract as a merged entity via improved net interest margins and presence in the automotive segment as well as the small and medium enterprise sector.