Bank Negara issues updated exposure draft on licensing for digital banks
(theedgemarkets.com / theedgemarkets.com March 03, 2020 11:26 am +08)

KUALA LUMPUR (March 3): Bank Negara Malaysia (BNM) has today issued an updated exposure draft on the licensing framework for digital banks that incorporates a simplified framework applicable during the foundational phase.

In a statement today, BNM said the simplifications aim to reduce regulatory burden for new entrants that have strong value propositions for the development of the Malaysian economy, while safeguarding the integrity and stability of the financial system.

"Digital banks will be required to comply with all equivalent regulatory requirements applicable to incumbent banks after the foundational phase."

Key features of the simplified regulatory framework include:

~ Capital adequacy requirement: The risk categories to calculate the credit and market risk components for risk-weighted assets under Basel II capital framework have been rationalised into simpler categories; and

~ Liquidity requirement: 25% of the digital bank's on-balance sheet liabilities must be held in high quality liquid assets.

BNM is extending the consultation period for the exposure draft until April 30.

It said all feedback on the exposure draft are to be submitted to the central bank by then. "Applications for new licence(s) will be open upon issuance of the policy document."


https://www.theedgemarkets.com/article/bank...g-digital-banks

A lot of borrowers not really understand the interest mechanism how to impact lending policy

A lot of borrowers misleading & miscalculating the lending cost

I will give you direct example :-


Scenario 1 :-

Mr.A has borrowed the loan from Bank during Dec'19, the bank offering him by BR + 0.50% = 4.25% (during Dec'19 period, BR only 3.75%)

So now Bank Negara Malaysia (BNM) suddenly had announced 2 time interest rate cut (OPR cut), 1st cut at 23/01/20 by 0.25% and 2nd cut at 03/02/20 by 0.25%

Simultaneously Mr.A will enjoy lower interest rate charged by 0.50%, which mean now Mr.A can enjoy 3.75% home loan interest rate



Scenario 2 :-

Mr.Y now intend to apply home loan but unfortunately bank can offer BR + 1.00% = 4.25% (new BR is 3.25% after OPR cut 2 times)

So Mr.Y has asked the bank, why your bank still maintain offering 4.25% since BNM had already announced 2 times OPR cut??

The Bank officer told Mr.Y that, despite BNM had already cut 2 time OPR, it does not mean new home loan application can lower down the interest rate because now bank profit margin getting lower & lower

If, the Mr.Y taking the home loan right now, ie BR + 1.00% = 4.25%, in future Mr.Y need to absorb higher interest cost

The reason behind is because BR can adjust anytime but spread rate (ie +1.00%) is fixed for entire home loan, in other word, if next few years later BNM gradually increase back OPR at the same time BR also adjust back, let say gradually increase by 0.75%, so Mr.Y home loan interest rate cost become 5.00%


Now you know why NOT BENEFIT for those new home loan application

One more important things

A lot of borrowers also wrong perception about the refinancing scenario

Most of the time, refinancing need to bear some cost, such as :-

1) Legal fees

2) Valuation report fee

3) MRTA or MLTA or MLTT insurance

^^ insurance cost will adjust or revise by respective insurance company every year subject to market conditions (like inflation, bank interest policy, economic factor)

If Mr.Y maybe wanted to refinance later, Mr.Y will need to bear the above costs (don't forget age factor also impact on the cost of MRTA insurance coverage)

At the end Mr.Y still bear higher cost in order to secure the home loan




** You think is it wisely to take up any new home loan right now ?????






This post has been edited by DisneyHome: Mar 4 2020, 07:25 AM

It might be 1 more round of OPR cut but not hurry

BNM also need to protect banks cost

If you look at past 20 years OPR in Malaysia, of course you will know how far can BNM further reduce interest rate

In fact not much room for further reduce

I am not blaming to any property agents or sale staffs

Most of the time they are sweet talk, not even understand the bank interest rate cost mechanism, so of course will approach buyers to buy now in order to enjoy lower cost

In fact, right now 2 BIG issue already put on the table

1st - interest rate cost for future

2nd - how much global economic impact on property market, most of the time when recession or turmoil come, property sector is the 1st sector heavily affected


** I am not advising you not to buy property, if buy for own occupation, it might wisely calculate the cost & right property

If your flip or investment wise, you need bear your own huge risk

Let me further elaborate the instalment for you

Assuming my property purchased is RM 500,000

Loan amount : RM 450,000 (assuming only property loan without other fees)

Loan tenure : 35 years

Interest rate offer : BR + 1.00% = 4.25% (after 2 times reduced by BNM) (current BR 3.25%)

Instalment amount : RM 2061 per month


Assuming BNM gradually increase back OPR (simultaneously BR also gradually increase back) by 0.75% later 3 years

new interest rate charged : BR + 1.00% = 5.00% (BR become 4.00% after gradually increase back to 0.75%)

New instalment amount adjusted : RM 2271 per month

** Assuming the new project need 3 years completion & vacant possession


You know how much need to bear extra cost each month if gradually increase OPR later !!


RM 450,000 x (5.00% - 4.25%) = RM 3375 per year

equivalent to RM 281 per month extra

Too sad to say confirm no interest rate change for new home loan application despite OPR cut whereby announced by BNM yesterday (I have called my some bank officers to reconfirm)

That's mean, if interest rate offered before was BR + 0.75% = 4.25% (before base rate cut was 3.50%), now become BR + 1.00% = 4.25% (after base rate cut to 3.25%)

Bear in mind, during Jan'20 BNM had announced OPR cut simultaneously BR also follow the suit but same practice for majority bank (ie no change of interest rate offer for new home loan by that time)

My personally point of view, I will feel very high risk if I intend to take up home loan right now

Since Jan'20 BNM already cut 0.25% & now OPR cut again 0.25%, which mean less than 2 months already cut 0.50%

So I need to bear the risk for future cost if BNM gradually normalise the OPR

Since majority commercial bank not willing to reduce home loan interest rate offer, after 2 times BNM OPR cut, no point to challenge current market unforeseen circumstances

Better wait, see & monitor approach to save our cost of living

Don't forget, home loan is always carry "BIG CHUNK" of debt for entire life

If the respective bank not reduce your instalment, actual is indirectly assist you to reduce more principal amount

Did you know how much you need to pay for interest cost each month again your monthly intalment !!!

If your loan tenure is 35 years, at the starting point, interest cost already cover by 78% of your instalment amount, which mean only 22% can reduce your principal amount

Of course interest cost will gradually decelerated & principal amount cover will be accelerated but need longer period of time

In calculation based on my above scenario, if your instalment is RM 2061 then interest cost already RM 1607 per month, only left RM 454 amount to reduce your principal

So you think if I take the loan right now, unfortunately 3 years down the road, BNM going to normalise the OPR, what happen to my instalment !!! What happen for my monthly interest cost !!!


**Wisely investment or purchase is right now priority

I have been watching some members here still misleading for those people intend to apply the home loan

Please reconfirm respectively bank officer who assist your home loan application

You need wisely to ask what is the different right now (after Jan'20 & Mar'20 2 times OPR cut) compare with before rate cut

https://www.bnm.gov.my/index.php?ch=mone&pg=mone_opr_stmt


If you look at above OPR decision, BNM even though aggressively cut rate to 2.00% during 2009 but very fast to normalise back to 3.00% in year 2011

Based on current offered by respective banks, even though 2 times OPR cut (BR also follow suit) but unfortunately spread rate increased back to normal the effective rate for new home loan applications

As I mentioned earlier, If I want to take up new home loan right now, quite high risk for the coming next few years once BNM normalise the OPR again

For those taken home loan before 2020, I can say congratulation to you all

For those intend to take new home loan, I can say wisely to calculate your monthly budget future & risk factor how far you can undertake

Always remember "Historical Data" don't lie you

Only Human always can lie you

The for funny things is if I purchase new property, at least need to wait 3 years for completion & vacant possession

During construction period, I only serving interest charged by progressively completion of each stage

Even though, might be, this 2 or 3 years I can willing bear the risk of interest cost by 4.25% (subject to no changes on this 3 years) because still serving interest cost from small ticket of interest charged to gradually increase until VP

Unfortunately after I got my home key, going to start instalment, BNM going to start normalising OPR, so my instalment also gradually increased & monthly interest charged also increased

Don't forget right now supply more than demand market situation, if I want to rent out to cover my cost, rental market become more & more competitive

Now the main issue is not easy to do refinancing

Unless you are low gearing & personal profile sufficient strong

Unfortunately a lot ppl holding few units property also hardly to refinance

When market not stable, banks definitely very cautious to review all credit facilities

Recently some majority banks already tightened lending policies, no matter refinancing or new property purchase

Your loan offered was before 2 time OPR cut

If not mistaken, you having loan with PBB by offering BR + 0.63% = 4.15% (before 23/01/20)

So now your are enjoying 3.65% after 23/01/20 (OPR cut 0.25%) + 03/03/20 (OPR cut again 0.25%)

Of course for those taken loan before 23/01/20, definitely can

I also having 3.70% interest rate offered but I took the loan last year

I pity those going to apply new home loan, definitely not so lucky to enjoy low rate as us






This post has been edited by DisneyHome: Mar 7 2020, 12:50 PM

S&P: NPLs to rise for Malaysian banks as political uncertainty adds to Covid-19 blow

(Surin Murugiah / theedgemarkets.com March 05, 2020 11:05 am +08)

KUALA LUMPUR (March 5): S&P Global Ratings expects slower credit growth and a higher non-performing loan (NPL) ratio for Malaysian banks amid challenging operating conditions.

In a statement today, the rating agency said banks are facing a multitude of headwinds from a position of strength, supported by their solid performance in 2019.

S&P credit analyst Nancy Duan said the global outbreak of Covid-19 and renewed domestic political uncertainty add obstacles for Malaysian banks, which are already grappling with the effects of a slowing economy and dampened investor and consumer sentiments over the past year.

“We are revising down our credit growth forecast for these banks to 1%-3% in 2020, from the previous 3%-5%.

“We now expect NPLs to reach 1.7%-1.8% of outstanding loans this year, versus 1.5% as of Dec 31, 2019,” she said.

Duan said the forecasts were based on the assumption that the global Covid-19 outbreak will subside and the domestic political stability can be restored over the coming months.

“We will need to revisit our numbers if those risks stretch beyond the second quarter of 2020.

“In our view, the government's recently announced credit relief measures could buy some time for the sectors most disrupted by the coronavirus outbreak,” she said.

Duan said S&P also expects more potential easing from Bank Negara Malaysia to shore up the economy, leading to a further 5-10 basis point compression of banks' net interest margin (NIM) in 2020.

“Our base case assumes stable capital adequacy ratios. However, risks are now tilted to the downside, given added drains on profitability and the rising dividend payouts announced by some banks last week,” she said.

Meanwhile, she said the rating agency expects a generally neutral impact to domestic banks from the RM20 billion stimulus package unveiled last week.

Duan said even before the government's stimulus package, the country's banks had rolled out their own programs to provide relief to struggling corporate borrowers.

“Supportive policies in the package could strengthen lifelines to banks' affected clients.

“However, we feel the special credit facility of RM2 billion is more symbolic than material, and that credit demand will weaken visibly, especially over the first half of 2020,” she said.

Duan said Malaysian banks' direct exposure to the most disrupted sectors, such as hotels, restaurants and airlines, is small at only a single-digit percentage of loan books on average.

“However, the global health emergency and domestic political upheaval are hitting oil prices, consumer confidence, and the broader economy in Malaysia. We will closely monitor such second-order effects and revise our forecasts as necessary.

“Malaysian banks are fundamentally strong, as reflected by their low NPL ratios, light credit costs, and large capital buffers.

"The banks' credit profiles have remained solid despite muted profitability in recent years. In our opinion, conditions in 2020 will put the banks to a much bigger test to their resilience,” she said.


https://www.theedgemarkets.com/article/sp-n...ds-covid19-blow

I also found some opinion from funds manager related to recent OPR cut preview :-


[BNM shared the same sentiment when it said on Tuesday that its monetary policy committee decided to reduce the overnight policy rate (OPR) by 25 basis points to 2.5% to provide a more accommodative environment to support the projected improvement in Malaysia's economic growth amid the global COVID-19 outbreak.

Today, Hong Leong Investment Bank Bhd wrote in a note that Malaysian banks' net interest margin slippage is seen to return in the first quarter of 2020 given the recent OPR cut.

"However, recovery would ensue in the following 3-6 months from downward deposit repricing (lagged impact),” Hong Leong said.]


https://www.theedgemarkets.com/article/klci...ovid19-concerns



What is meant by slippage in banking?

Fresh accretion of NPAs during the year or a falling below the current position of standard assets of the bank is a slippage. ... A sharp rise in slippage has major impact on provisioning and net profit of the bank. Low slippage or no slippage in asset quality shows how asset qualities are managed by the bank.




This post has been edited by DisneyHome: Mar 7 2020, 01:05 PM

PAS urges merger of Malaysian banks to address liquidity concerns
(Ahmad Naqib Idris / theedgemarkets.com March 06, 2020 11:41 am +08)


KUALA LUMPUR (March 6): PAS central economic, real estate and entrepreneur development committee vice-chairman Mazli Noor has urged for the consideration of a merger of banks to address liquidity concerns in the nation’s financial system.

In a statement yesterday, he said that a merger is “inevitable” and that it is a much needed move given the current situation, urging industry players to act fast.

Mazli said the party’s recommendation follows Bank Negara Malaysia's (BNM) decision to cut the overnight policy rate (OPR) by 25 basis points to 2.5%, the lowest level in 10 years, which it said was part of a series of capital controls employed, which also includes the reduction in the statutory reserve requirement (SRR) to 3%.

“Analysts expect this situation to have an impact on net interest margins and earnings of the banking sector," he said, adding that some analysts are expecting the banking sector’s margins to see contraction of between 2% and 3%, which will then affect their earnings by 1% to 2%.

While Mazli agreed that the lower OPR will translate to lower borrowing costs for consumers, he said this has had other effects, especially the decline in the loan to deposit ratio, which he said stood at 87.6% as at January 2019.

He said this has forced banks to compete for deposits, which will affect their earnings.

Given the tight liquidity environment, a merger, he said, is the most optimum way to save the banking industry and to protect consumers.

“With an enlarged size, the banks will have better economies of scale to continue competing. The government has to facilitate this by initiating talks between the banks, suggest on business matching and by giving relevant incentives.

“Governance is also important as in any integration or business merger, good governance is a main factor for success,” he said.

Mazli also urged banks in Malaysia to expand regionally, following in the footsteps of Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd, as the banks would be able to take advantage of an enlarged market which could improve their cash flows.

However, he added that this would only be effective in the event that a merger of the banks is completed.


https://www.theedgemarkets.com/article/pas-...uidity-concerns

Is it the right action taken right now ???

Is it benefit for all banks ???

Is it any benefit for all consumers???

Is it very very close to become monopoly banking industry ???

That's reason why now all new home loan applications need to scale up the spread rate despite BR cut

At the end, the new home loan borrowers definitely will suffer if few years down the road, BNM normalise back the OPR

Sooner or later they need to pay more especially for those purchase from new project property because still no feel pain during construction period but after VP with full instalment start than different story