Personal Financing Segment Downturn: Personal loans, once growing at 20%, down to 4.2%

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BANK Negara Malaysia does not expect to see an increase in personal financing with the implementation of the Goods and Services Tax (GST) next year.Governor Tan Sri Dr Zeti Akhtar Aziz said prior to the rolling out of such measures, the segment was growing above 20% during the 2010 to 2012 period, and moderated rapidly to 5% in the second quarter of this year. The segment, which was a matter of much concern between 2010 and 2012 as it was growing at an above 20 per cent momentum, had moderated to 4.2 per cent in the third quarter as a result of greater financial literacy and macro-prudential measures.

Bank Negara Malaysia (BNM) is satisfied with the downtrend in personal financing segment, which is now moderating at 4.2% in the third quarter of this year as a result of its macro-prudential measures. “Personal financing moderated at 4.2 per cent for the third quarter ended September 30 2014 from five per cent in the previous quarter,” she said at a media briefing on Malaysia’s third-quarter gross domestic product (GDP) performance, here, yesterday.

“This shows the effects of macro-prudential measures not only in the banking sector but also in the non-banking sectors, such as shadow banking, cooperatives and other credit agencies.”

The central bank expects personal financing to grow at the same moderate pace until the end of the year and throughout the GST implementation.

“We expect it to continue to stabilise and not increase with the GST as consumers from the lower income group are being supported by income transfers to help them meet their living expenditures,”Zeti said, referring to the 1Malaysia People’s Aid (BR1M) programme.

According to a Bank Negara report yesterday, the bankruptcy level in Malaysia had also moderated to 5.5 per cent in the third quarter.

On the decline in savings among businesses and individuals, Zeti said it was not at worrying levels as investment activities were strong.

She said the decline translated into narrowing surplus in the balance of payments, which accounted for three per cent of gross national income.

“Yes, we are seeing some moderation in savings activity but this has not put a limit on access to funding.

“This is proven by investments that have continued to grow significantly,” she added.

On fiscal debts, Zeti said Bank Negara was well aware of the need to remain prudent in managing the increase in national debt and its contingent liabilities. “The government is looking at measures to lower the debt and this is proven with the declining of its debt ratio to the GDP from 55 to 52.8 per cent. We are also pleased that the deficit trend is declining as well, demonstrating the government’s commitment to deal with the issue,” Zeti added.

"Furthermore, we have an extensive education on financial literacy to inform consumers on being prudent and not go into indebtedness unnecessarily," she told a media briefing on Malaysia's third quarter gross domestic product (GDP) performance on Friday. She also highlighted that non-performing loans were low at 1.2%.

Meanwhile, Zeti noted that there would be a hike in inflation next year due to cost adjustment, however, Malaysia's growth would still be underpinned by domestic demand. Inflation is expected to be at its long-term average of 3% by 2016.

Domestic demand, on the other hand, would be supported by the country's stable labour market conditions, which is now experiencing low unemployment rate of 2.7%, and continued wage growth. For the third quarter, Malaysia's economy expanded by 5.6%, higher than the 5% achieved in the same quarter last year but lower than the 6.5% recorded in the second quarter of 2014. For the whole of 2014, the central bank expects GDP growth to be between 5.5% and 6%, while for next year, the economy is expected to grow between 5% and 6%.