Short position

by **Cals** Mon 25 Apr 2016, 02:49

Saturday, 23 April 2016

Short position

Bad debt rising

THESE days, rising debt is one headline that we keep reading about or listening to in the news.
A Reuters report showed that Asian banks have seen non-performing loans (NPLs) climb to their highest since the global financial crisis and will likely worsen. The report linked the challenges faced by these banks (excluding Japanse and Indian banks) to China’s slowdown and on volatile commodity prices.
Essentially, we all know that banks are girding themselves for more NPLs. Senior bank executives are expecting it, given the tough economic conditions around the world. In Malaysia, the latest data showed that the NPL ratio had risen three basis points to 1.64% in February and there are expectations that it could deteriorate to around 2% by year-end. While the country’s economic fundamentals are more or less solid, slower growth, a higher cost of living and job retrenchments will mean that many more will find it harder to service their debt.

Although household loans growth has slowed down in the last three years following a raft of macroprudential measures initiated by Bank Negara, household debt continues to creep up. This is not because Malaysians are taking on more debt, but because low wages continue to be a problem for many.
A report showed that an estimated 27% of households earned less than RM5,000 monthly, making them vulnerable should the economy go through a rougher patch than expected. Wages have also not been able to keep up with asset-price inflation, especially of property.
There is reason to believe that Malaysian banks are only going through the early stages of what could be a three-year slow-growth cycle for the economy. If that happens, debt will continue to rise and banks will also have to make provisions for higher credit costs.
An end to Bank Negara guessing game

Banks are the most important financial intermediaries for an economy. If they are hobbled by rising NPLs, and become more cautious, it can turn into a vicious cycle that feeds into itself, with a slower economy making bad debts jump, which in turn make banks wary of lending that then weighs on the economy, as individuals and firms cannot borrow to fuel spending in the economy.
BANK Negara governor Tan Sri Zeti Akhtar Aziz (pic) will retire on April 30, which is only a week away.
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As Zeti prepares to pass the baton and unload her duties, the successor has not been named yet, something that the market is waiting for anxiously.
The reason is because the central bank governor is a key appointment that determines the future direction of monetary policies adopted by the country. Zeti’s successor, if received well by the markets, will boost confidence and contribute to the continued strengthening of the ringgit.
These are fundamental reasons enough to warrant that her successor must be someone who is not only able to steer the economy, but also garner the confidence of investors.
The appointment of her successor if named earlier would be better.
The fact that the economy is facing a host of challenges due to the external environment and lower oil prices are already reasons enough to see that the market is not kept guessing until the last day.
Whoever the Government names, the person must be equipped with sound knowledge of the financial markets and the external economic environment.
The shoes of Zeti will be hard to fill but not impossible, given the strong institution Bank Negara has grown to be.
Zeti’s departure has long been speculated. Several names from within Bank Negara and outside the central bank have been bandied about as her possible successor. One thing is for sure - the long wait will finally end this week.
The FinTech revolution

FINTECH, the new buzzword hitting the financial world, is making incumbent players sit up and take notice.
Short for financial technology, FinTech initiatives are aiming to deliver services that push the boundaries of the financial services industry. Fuelled by innovation, FinTech players are challenging traditional players within the financial services to deliver cheaper, more effective alternatives for end-consumers. The target seems to be the fat fees that banks make in many transactions. Here’s a simple example: cross-border money transfers are being matched by some FinTech players, which could potentially end the need for outbound and inbound telegraphic transfer fees. There is also foreign currency exchange matching, offering better rates than the traditional money changers and banks. And that’s just the tip of the iceberg. No wonder some commentators are saying that banks are facing a “Uber-like” moment, in reference to disruption to daily travel businesses that Uber has brought about.
To be sure, banks are taking heed and setting up their own FinTech divisions. It will, however, be a question of how fast banks can evolve to keep ahead of the FinTech revolution.
Another aspect is regulation. The regulators of the financial markets need to keep abreast of FinTech in order to ensure that illegal activities are kept at bay, while at the same time facilitating FinTech to prosper in the country. That’s simply because FinTech is here to stay due to the enormous benefits it tends to bring to consumers in the form of cheaper and more efficient financial services.