New lending guidelines won’t slow growth

THERE may be more forms to fill, disclosure to listen to and information to absorb, but the new responsible lending guidelines is the right direction to go.

Loan growth by banks should not slow noticeably because of the new measures.

The economy is growing nicely and job creation and salary bumps will mean more credit demand.
There will, however, be those who will feel that the checks being put in place is the wrong way to go.
Sure, people will complain that banks will not let them borrow more money even though the potential borrower might feel they can repay their debt.

But the new guidelines serve as a mechanism to keep household debt in check.

Household debt is on the high side at 77.6% of GDP but there is one silver lining. Household liquid assets at the moment is more than sufficient to cover their debt.

The bulk of household debt is held by households with a monthly income of more than RM5,000 a month and although the more you earn would indicate more leeway in dealing with debt, the idea of putting the brakes on household debt is more preventive than anything else.

We have all seen what runaway debt in households can cause. South Korea dealt with it when it went through a credit card crisis in 2003 and in June this year, applied more checks to slow down its own bourgeoning household debt problem which has arguably the highest debt-to-GDP ratio in the developed world.

For Malaysia, the lessons of South Korea is plain to see. The authorities there took action with one eye on the ramification of such a high debt build-up.

Should debt become too high and unmanageable here, it will affect the economy. Let's not go through the obvious scenario where a sharp slowdown in economic growth will spell trouble for households and banks.
Growing debt in itself would naturally crimp on a household's ability to consume and with domestic consumption, where private sector expenditure is a large part of, a big locomotive for the economy, then any danger to it must be managed.

Households should know that when interest rates rise, repayments will go up too. Households which have been accustomed to low interest rates might be feeling that the current low borrowing cost regime might be here to stay but the reality is that nobody knows.

It's likely that interest rates will remain depressed for a long time but it will eventually rise one day and that day of reckoning is something we, the banks and the economy should be cognisant of. (The Star Online)

Opportunity to expand Islamic finance offerings

As international markets are perched precariously on the edge of a global financial abyss, a small window of opportunity has sprung up for Malaysia to spread its Islamic finance wings internationally.


“There is an opportunity now but the window is small,” International Investor country publisher Cory D'Abreo said, an observation seconded by the Global University of Islamic Finance (Inceif) president and chief executive Daud Vicary Abdullah.

“The pendulum of power is swinging towards the east and right now it is in the Middle East. So they are beginning to flex their muscles,” Daud said, adding that before the Middle East took hold of the international Islamic finance, Malaysia should grab the chance to promote its Islamic finance sector globally.

Sharing views at the recent International Investor Islamic Finance Roundtable, he added that the Middle East had an inferiority complex towards the west previously but “that is slowing stripping away as they become more vocal about wanting things done the syariah-compliant way”.

He also said that Malaysians, in turn, had an inferiority complex towards the Middle East when it came to Islamic financial services and products and therefore, were hesitant about venturing beyond local shores.
On the local Islamic finance milestones, Securities Commission Islamic Capital Markets executive director Zainal Izlan Zainal Abidin noted that growth had been fanned by more industry players achieving economies of scale and greater product innovation and development.

“Islamic finance has been growing rapidly (here) in the past two decades but there needs to be another growth driver (to sustain growth momentum). We believe having more syariah-based approach, which means more risk-sharing structure, will propel the growth,” he said.

“The projection for the growth of Islamic capital market (ICM) in Malaysia is 10.6% per year for the next 10 years from the size of about RM1 trillion (valued last year). This would take the value of the Malaysian ICM to almost RM3 trillion,” he said, adding that this would encompass about 60% of the total local capital market.

Zainal added: “From the capital market perspective, we are looking at ways to drive expansion not just through product range but also specificities of the products like having more foreign currency issuance as well as funds in more varied sector funds to cater to a wider audience.” (The Star Online)