M’sian banks vulnerable to falling household health

Updated: Wednesday February 12, 2014 MYT 6:48:36 AM

M’sian banks vulnerable to falling household health

PETALING JAYA: Malaysian banks are particularly vulnerable to deterioration in household health, given that the household sector accounts for about 57% of the banking system’s total loans, a report by Standard & Poor’s Rating Services (S&P) shows.

S&P analysts Ivan Tan and Deepali V Seth Chhabria said a prolonged run-up in housing prices and household debt in Malaysia had contributed to growing economic imbalances in the country.

They pointed out that credit risks were also high, given Malaysia’s fairly large private-sector debt burden relative to the country’s modest income levels.

“S&P anticipates that major Malaysian banks’ generally healthy financial positions, including sufficient capital and liquidity buffers, will mitigate the potential credit risk from high household debt and escalating property prices,” they said.

They added that government support also underpinned the ratings on many banks.

“In our base-case scenario, we expect the Government and the regulator to put the brakes on the rapid rise in property prices and growth in household debt. The effect of the Government’s recent stringent cooling measures will become more apparent as we move further into 2014,” they said.

They expect the banks to have adequate capital and liquidity buffers to maintain their financial positions despite risks from weakening household health.

Malaysia’s households face challenges on several fronts. Household leverage has been increasing over several years even as income levels remain modest. The country’s per capita gross domestic product of US$10,849 (RM33,632) is one of the lowest among “A-”rated sovereigns.

“Subsidy reductions for sugar and fuel will push up living expenses, while the threat of rising interest rates from monetary policy normalisation looms. Economic imbalances from high property prices will strain household debt servicing when the credit cycle turns,” they said.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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