Bank Negara Malaysia’s (BNM) move last Friday to tighten consumer lending will be negative for loan growth but the impact will not be significant, CIMB said, as it urged investors to hold on to their holdings in banks.
The three measures the central bank announced were 1) a maximum tenure of 10 years for personal loans, 2) a maximum tenure of 35 years for property loans, and 3) a ban on pre-approved personal financing products.
“The slowdown in consumer lending due to BNM’s tightening could be more than offset by the recovery in business loan momentum. But margin compression and a rise in credit costs remain concerns for 2013,” CIMB said.
Maybank remains the top banking pick, given the potential re-rating catalysts of swift growth in Indonesia, and the regional expansion of its investment banking operations. It said Public Bank, despite being the biggest property financier in Malaysia, should see minimal impact from the new measures due to its stringent lending practices.
Moreover, the bank’s exposure to property loans of more than 35 years is minimal, and it is planning to wind down its exposure to personal loans. CIMB said it did not see any adverse effect on RHB Capital either.
BNM’s new measures will, however, be felt in the personal loan segment as they will lead to a significant increase in monthly loan repayment, resulting in lower affordability for borrowers. However, the effect on overall loan growth for the industry will be minimal as personal loans contribute only about 5% of the industry’s loan base and 0.4% points of the industry’s loan growth of 9.3% year-on-year in May 2013.
It added that even if personal loans should stagnate because of the new measures, it will only shave the industry’s loan growth by 0.4% point.
Most banks, I pointed out, notably the likes of Public Bank, Hong Leong Bank and Alliance, have pulled back from extending personal loans, especially to government servants, partly due to moral suasion by BNM. As a result, growth of the industry’s personal loans collapsed from 20.1% in 2011 to 9.1% in 2012 and 8% year-on-year in May 2013.