PETALING JAYA (March 22, 2013): Bank Negara Malaysia
(BNM) is closely monitoring the lending practices of non-bank financial
institutions (NBFIs) such as Bank Rakyat Bhd and Malaysia Building
Society Bhd (MBSB), particularly those that lend to the lower-income
segments, as a spike in personal financing loans has raised alarm bells.
Source from (The Sun Daily): http://www.thesundaily.my/news/642902
Published: March 22, 2013
In its Financial Stability and Payment Systems Report 2012, the central bank said it has increased the intensity of its supervisory reviews of NBFIs under its regulatory purview.
It now requires NBFIs to enhance the calculation of debt service ratios by including repayments which are not part of automatic salary deduction and to review the features of of its lending products, including repayment tenure, that are likely to encourage irresponsible and imprudent borrowing by households.
About 80% of personal financing by NBFIs are to salaried households in the government services based on an automatic salary deduction scheme administered by Biro Perkhidmatan Angkasa (BPA).
This has also seen it engage with the Cooperative Commission of Malaysia (SKM) and the board and senior management of larger NBFIs which are not currently under any form of regulatory oversight.
The recent passage of new legislation and the amendments to the Central Bank of Malaysia Act 2009 empowers the central bank to address risks from entities outside of its regulatory perimeter.
While NBFIs and the development financial institutions (DFIs) accounted for only about 12% of total credit to the household sector, collectively they provide a 57% share of personal financing credit to households and it has been increasing significantly.
Personal financing as a share of household debt increased to 17% from 16% in 2011, as result of this.
"On average there is no concern on household debt but the lower income group RM3,000 and below increasingly become over leveraged not only on assets like cars and houses, but personal loans. This is where the concern arises," BNM Governor Tan Sri Zeti Akhtar Aziz told a media briefing in conjunction with the release of BNM Annual Report and Financial Stability and Payment Systems Report 2012 on Wednesday.
Last year, the three largest NBFIs, comprising a DFI, a large cooperative and a building society, expanded at a faster rate of 23.1%.
The strong credit was primarily driven by the increase in personal financing activity which rose at its fastest pace to date by 30%. In 2011, it grew by 25.11%.
In 2012, the average financing amount for personal financing facilities by NBFIs stood at RM68,000, up 26% from 2011 and 30.2% higher than average personal financing facilities by banks.
The proportion of new personal financing facilities for amount exceeding RM100,000 also increased significantly to 26% of total new facilities approved (2011:15%).
BNM found that in order to comply with salary deduction thresholds (BPA has it at 60% of total income), financing packages allowed for extended repayment tenures or in some cases bullet repayment principal and interest upon reaching retirement.
"The long maturity of the financing portfolio by NBFIs (of up to 20-25 years for personal financing) vis-a-vis shorter term funding sources (largely deposits with maturity of not exceeding 12 months) gives rise to material funding mismatch and liquidity risk," BNM said.
As at end of 2012, the loan-to-deposit ratio for these NBFIs ranged between 77% and as high as 125%.
The low reliance on bank borrowings of abut RM2.6 billion or 1.4% of banking system capital base however limits the potential spillove of risks from the NBFIs to the banking system.
BNM said NBFIs practices have encouraged the build-up of leverage among low income households and spending beyond their means.
In 2012, non-performing loans for NBFIs remained low at 1.6% compared with 1.8% for personal financing in the banking system.
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