Banking sector is still registering loan growth generally on household debt, (which primary consist of home loan and car loan), just the pace of growth is slower than last year. Last year teen digit growth, this year expect a single digit about 8~9%.

From the banks' balance sheet across, one can see their loan amount still growing at some pace.

http://www.thestar.com.my/Business/Busines...to-RM854pt3bil/

Yes, have some truth inside, slow loan growth generally could because of fewer transaction potentially being done.
But at 8~9% growth rate of loan, it is about average, medium good number, not a disaster figure.

Nobody look to lower household debt, debt generally only grow big and bigger, not shrink, unless you have severe recession, crisis event already.

BNM wants to reduce the household debt ratio to GDP, not reduce the loan amount, aka BNM hope the pace of growth slow down, instead of stagnant, while GDP is growing, which could reduce the ratio of it.

If loan not growing, that you could see property price plunging down, recession, deflation etc already.

Yes, unlikely the ratio will go lower in the near future, with there is still good loan growth figure.
Just it is an aim to do so.
At least at 8% loan growth vs 4~5% GDP growth, the debt ratio won't surge too fast as compared to 12~15 loan growth vs 5% GDP growth.

Generally, if borrower able to repay their loan, service their loan, BNM doesn't want to step in too much, as loan growth is one of essence for GDP growth as well.
NPL of banks at the moment mostly at historical low figure generally.

It is impossible to dig into every details and scrutinise eveything , but a generally figure of loan growth figure, NPL ratio, household debt figure will give us some clue how property or specifically economy is doing.

Household debt primary consist of property loan (main), secondary is car loan.

Loan figure or total amount will only get bigger and bigger, (unless in recession/crisis time), so there is no "historical high" regarding the figure of total amount of loan as everyday, every month, or every year, the figure is always getting bigger one.

Whether the NPL ratio is getting smaller due to more loan growth or not, it doesn't matter, as health of banks or financial, or economy generally, is judged based on % of it.
As long as the % remain low, it is manageable for banks.

Just like if one is doing a business that monthly revenue RM100 million, and with profit margin 3% (similar to bank), you do not scare of your debtor default RM100k.
So even defaulter become more and double become Rm200k, but now your business become RM200 million, it is still not alarming figure, as ratio remain the same.

It is all about % wise that dictate whether the default is manageable or not. It is not perfect world, whenever banks make loan, they already anticipate some default rate as well, just how it is managed and keep it low, and if ratio of it is the key.

Yes, NPL is a reactive indicator, cannot be used to predict anything, but even it is reactive indicator, it just show previously 3/4 months or 6 months or even 1 year ago, the loan default ratio is low.

Actually, no data can be used to predict future accurately.
Past performance/past data never guarantee what future will be.
And most data, be it current month of sales, transaction number, GDP, default rate, all are reactive number as well.

By the time, the data is in our hand, it is few months ago issue already.

A cheap currency is good for export hence could spurs the economy, but bad for domestic people consumption power aka purchasing power.

So always need to get the balance right, you want good economy that can be translated into increase of purchasing power as well.

For interest rate front, I do not think OPR is going to change much, as GDP growth is not as strong while inflation is all about push cost factor, that a rise in OPR/interest rate won't able to solve a cost push inflation situation.
With about 4~5% GDP growth, a slowing loan growth, BNM may not want to be more hawkish on interest rate, as a too significant rise in interest could kill the economy, by then it may harder to revive the economy back, once a wrong move being made.

So my pov, the most OPR may go, won't more than 0.25~0.5%. Bond market reaction to QE tapering generally has been calming down across. So the pressure from the bond market for OPR to increase generally has reduce substantially recently.

About property issue, not much comment on this part, but agree on slow transaction, less better response should be the situation, due to macro economy issue.

GDP is measured by output or produce of goods and service, not number of property transaction and amount of it.

When you buy a old house, there is nothing to produce, there is no output of goods or service, just transaction going on.

Same with stock market, stock market transaction can be trillion of worth transaction per year, but it doesn't contribute to the GDP, because there is no output of service



http://en.wikipedia.org/wiki/Gross_domestic_product
This post has been edited by cherroy: Apr 12 2014, 10:07 AM

Unless it is a new house, whereby when one buys a new house, there is output activities, aka from nothing, you 'output" a house so the economy did produce goods in the process.

While an old house can be transacted 10x, 100x in between, which doesn't contribute to any output.

http://en.wikipedia.org/wiki/Gross_domestic_product

BNM interest rate was not coorelated to Fed.

Fed interest rate was moving from 1% to 4.x% in between period of 2001 to 2005/6, while BNM interest rate was steady across at 3%, little movement at the same period of time.

While when Fed rate was reduced to 0.25% from 4.x%, BNM interest was also steady across at 3%, except during the height of financial crisis, whereby there is period of a year or two that BNM OPR rate was reduced to 2%, but eventually back to 3% until now.

BNM interest rate was more domestic influenced since 1997 instead follow tightly like HK.

Since 1997, we never have OPR more than 3% or steady across (except a year or two dipped to 2%), it is 17 years already, despite the movement up and down of Fed fund rate between 0.25% to 4.x%.

Purchasing power is not good due to inflation, middle class is being squeezed more.

Other I do not wish to comment further, as it is not financial issue anymore, I just comment what had happened, what is happening on economy front.

Malaysia economy is not isolated, nobody said Malaysia economy or financial market is isolated,
but to say BNM OPR is coorelated to Fed fund rate, we have historical data to prove it otherwise. So the statement is not true.

Interest rate or OPR has other factor affecting, it is not blindly coorelated to Fed Fund rate.

OPR is not a showcase number (like CPI), it is one of most influential factor/figure that dictate the financial market.

KLIBOR is coorelated to the OPR and KLIBOR is the cost of fund for banks, which is the base or cost of lending for banks.

Effective lending rate is going down since for the last 10 years or so.
I remembered one of my relatives bought a house about a decade ago, and housing loan was always BLR +, which effectively around 6~7%, but now, mostly at around 4.x%, aka BLR -.

Reason, liquidity in the banking system is ample, there is no sign of KLIBOR significantly rising, while OPR unlikely to move or move much, even some talked about possibility of BNM to raise OPR, mostly won't see beyond 0.25~0.5%.

Reason

1. A rise in interest rate could kill the economy, we have 4~5% GDP growth which is about right, not a strong figure.
A rise in interest rate could easily detrimental to the economy.

2. Inflation is not running wild, although I also view it is pretty high.
But a rise of interest rate won't able to cure the inflation issue, because we primary have push cost factor inflation, electricity tariff won't be reduced with a rise in interest rate, hence cost of manufacturing won't be reduced with it.
Min wages is not going to be lower due to higher interest rate.
Cost of oil/petrol won't be lower due to rise in interest rate.

3. External environment.
At 3%, it is considered "high" in current environment, Australia and NZ both are previously known as high interest one, also below 3%, Malaysia even has higher rate than Thailand.
So 3% figure is not that "bad" as compared.

If BNM did raise rate to 6% (as claimed should be), then Malaysia may attract plenty of hot money for carry trade, (borrow USD at 0.x~1.x%, then earn 6% here), which in turn may not do a favour for the economy, apart from the issue killing the economy by having high interest rate.

So BNM needs to walk in a tight rope to have supportive level of interest rate.

Yes, I do agree too cheap lending rate may be gone, due to QE tapered,

But OPR and KLIBOR is unlikely to change much.

QE tapered is not affecting BNM decision on OPR which OPR is the one affecting KLIBOR.

Whether effective lending rate higher than BLR or not, I do not have crystal ball to know, as effective lending rate is all depended on liquidity and willingness of banks to do the business.

But I do know, effective lending rate cannot fall below KLIBOR, even LIBOR, Fed fund rate is 0%.

Also, I do know BLR will become a history as well.
As future loan will be based on KLIBOR quoted, as BLR has lose its identity due to current and more sophisticated financial environment.

We can't take historical data and conclude the effective rate must be higher than BLR (actually BLR is not relevant in current situation) or not, as before 1998, Malaysia financial market was more open, less restriction for fund flow around, plenty of smaller banks that may not be well capitalised back then etc reason. While current financial market and banking environment has changed a lot since then.

So anything prior before 1998 cannot be taken as good comparison.

Also central banks hawkishness on rate is not the same as last time.
Nobody talk about deflation nor knew the meaning of deflation, but nowadays, deflation is always the central point of talking whenever economy data show sluggishness.

Last time, GDP growth of 6~8% was a norm figure, but ability to achieve 5% is considered a very good number already.

Effective lending rate is all depended on liquidity situation, and effective rate must higher than KLIBOR rate, which is the cost of funding for banks. If not, banks are making losing business already.

Whether gap between KLIBOR and effective lending rate, is depended on liquidity and bank willingness to do the business.
It is not a must that the gap must be 3% or 5%, as bank nowadays are more sizeable than last time out, and better capitalised than last time as well which enable them to give competitive rate.

BLR is not relevant anymore based on the development of financial market or banking system, that's why BNM intended to introduce a better pricing mechanism for newer loan framework, and ditch BLR.

Financial market and banking environment do change, it doesn't stay the same forever.

Don't get me wrong, yes, effective lending rate may creep up some, due to QE tapered that may result lower liquidity and hot money flowing, but how much it creep up, depended on how situation unfolding.
Without rise in OPR and KLIBOR, there is a limit how much it can go.

If one want to say BLR is just a figure for window dressing, then I have no comment.
After all, BLR is not relevant anymore, that's why BNM also want to ditch it.

Effective lending rate, worldwidely generally depended on the interbank rate, in London, it is Libor, in Malaysia, it is Klibor, which is the cost of funding for banks to obtain the money to lend to borrowers.

OPR is not a window dressing figure, it is an ultimate rate the determine the interest rate environment for a country.

You need to understand the importance of OPR and function of it before label it as a "window dressing" figure.
It is one of most importance figure/factor that can dictate the economy.

Worldwidely from 2009 to 2013, many growth are due to gov effort, not limited to Malaysia, the aftermath of 2008 crisis, that every country also want to prevent deflation and promote economy growth.

GDP figure already taking into account of inflation due to a depreciation of exchange rate (if).

http://en.wikipedia.org/wiki/Gross_domestic_product

If compared to 2000, RM actually appreciating, not depreciating.
Remember last time RM was pegged at RM3.80 vs USD
Now Rm3.2x.

Even if there is devaluation that resulted in inflation, GDP calculation already taken into account as posted in previous quote.

Yes, effective rate likely to creep up, when QE finish its tapering, may be to 5~6%, as compared to 4.x% currently.

But now effective rate is > Libor, so what is abnormal?

Effective rate is > Klibor > Libor. It is still a normal trend.

As said before, BLR is irrelevant nowadays.
BLR is not the cost of funding for bank, but Klibor is.

GDP number without taking into account inflation is called nominal GDP

The GDP number published already minus out the inflation.

So with GDP growth of 5% with 3% inflation rate, the nominal GDP is 8%.

One can say number may not accurate reflecting the real situation, but corporate revenue and profit figure in their account do not lie, which generally has shown growth across.

QE purpose is like to flood the market with money, forcing idle money sitting in the banks "flooding out" to do something on economy.