Analysis Bank Negara measures to hit non-banking financial institutions, developers

Analysis Bank Negara measures to hit non-banking financial institutions, developers
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Monday, 08 July 2013 15:16

KUALA LUMPUR (July 8): Bank Negara Malaysia's (BNM) stricter lending policies are expected to curb lending growth of non-banking financial institutions (NBFI) which have larger exposure to personal loans compared to commercial banks, analysts said.

The property sector is also in the spotlight in anticipation that shorter loan durations which translate into higher instalments may have a negative impact on real estate demand.

"BNM's latest measures will have a greater impact on personal financing than property lending, and NBFIs rather than commercial banks," Maybank Investment Bank Bhd analyst Desmond Ch'ng said in a note today.

The central bank said last Friday (July 5) it had capped the duration for personal and home loans at 10 and 35 years respectively. This compares to the maximum 25 and 45 years respectively for both schemes previously.

The regulator is also prohibiting pre-approved personal financing products for consumers. BNM said these measures, which took immediate effect last Friday, aim to curb excessive household debt in the country.

According to Maybank's Ch'ng, NBFIs like Bank Rakyat and MALAYSIA BUILDING SOCIETY BHD [] which offer personal loans for a maximum duration of 25 years, may see their lending growth curtailed with the 10-year limit.

Meanwhile, commercial banks which have been reducing exposure to personal loans have an average of between five and seven years for such schemes.

Hence, Ch'ng said commercial banks are unlikely to be negatively affected by BNM's move.

The central bank's new measures may dent sentiment on property companies. Ch'ng said the measures together with speculation of curbs on developers interest bearing schemes, may have an immediate negative sentiment on shares of property firms.

But he sees "limited impact" on overall property demand.

"Given that most banks cap the maximum age for a property loan at 70, shortening the loan tenure to 35 years from 40 years will mainly affect younger borrowers below 35 years of age, whose borrowing capacity is generally limited.

"There will nevertheless be an impact to loan repayments under these new measures," said Ch'ng who is maintaining Maybank's earnings forecasts and target prices for property firms under its coverage.

The research firm is maintaining its "overweight" call on developers. Maybank's top pick is GLOMAC BHD [].

Meanwhile, Hong Leong Investment Bank Bhd research head Low Yee Huap said the research firm is keeping its 9% loan growth projection for 2013 despite BNM's latest measures.

In a note today, Low said Hong Leong expects "resumption of activities" post general election to sustain domestic loan growth in the second half of this year.

"We applause BNM’s preemptive but pragmatic measures to ensure healthy growth and limiting unhealthy practices that could jeopardise long-term sustainability of household loans.

"Limiting the maximum tenure will result in higher repayment (or lower affordability) which could have an impact on loans growth. The impact is likely to be larger for personal use given the higher reduction," said Low.

Maybank and Hong Leong are maintaining their "overweight" calls on the banking sector.