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Friday April 1, 2011
By Jagdev Singh Sidhu email@example.com
Cash call to bump up capital ratios for record loans
KUALA LUMPUR: Malaysia Building Society Bhd (MBSB) expects to lend a record RM5bil to RM6bil to civil servants this year after shareholders approved a cash call that would bump up its capital ratios and allow it to lend more money.
The company defended the rapid growth of its personal financing business, where between 60% and 80% of a government servant's salary is eligible for deduction for a personal loan scheme from MBSB. saying profits generated from lending money would not cause financial difficulty for civil servants or the company in the future.
“It's a natural progression of business. Our objective is to promote personal financing to civil servants at rates that are affordable,” MBSB CEO Datuk Ahmad Zaini Othman told reporters after the company's AGM in Kuala Lumpur yesterday.
Ahmad said MBSB was instrumental in bringing down financing costs for civil servants, as it slashed rates charged to civil servants to 5% at a time when its competitors were charging 9%.
Ahmad said 50% of the company's loan portfolio was in mortgages, and 30% in personal finance loans. Moving forward, personal loans, especially to civil servants, would account for 50% of its portfolio.
The importance of its new business model of providing personal loans has led to a big turnaround in the company's fortunes. It used to generate much of its profits in the past from recoveries but last year nearly 100% of its profit came from operations. MBSB posted a net profit of RM146mil last year, a record in the company's history, and further improvements are expected this year.
He dismissed equating high salary deductions to the creation of sub-prime borrowers, saying deductions were tied to the salaries of government employees and deducted at source.
Ahmad does not think MBSB, by concentrating on personal loans, is setting itself up for failure in the future.
“It's to the civil servants. From a credit perspective, the permanency of employment is there 97% of the time,” he said. “From a credit perspective, it's no issue.”
He said non-performing loans from civil servants were less than 0.5% and non-performing loans went up only when a staff member resigned.
“We are getting 300 to 400 customers a day,” he said, adding that 70% of the loans given last year was to refinance existing loans and 30% was fresh debt taken by civil servants.
The average basic salary of the government staff that takes a loan from MBSB is around RM1,500 a month.
Household debt has been a concern in recent times and Bank Negara will be issuing new lending guidelines for individuals in the third quarter, where they will be stress-tested to see if they can afford to borrow money.
Even though MBSB is not regulated by Bank Negara, Ahmad said MBSB would adhere to any future guidelines of affordable lending Bank Negara announced.
“We have started on responsible lending. We say don't borrow if you don't need it,” he said. “Our credit assessment is on par with the industry. When the time comes and the authorities ask us to put a curb on certain things, we will do it.”
MBSB has 33 branches but 70% of its business comes from agents.
The company is planning to issue credit cards and other services targeted at government employees later this year. The hire purchase financing would, however, be open to the public.
Ahmad also dispelled talk about the validity of its “code” used to deduct salaries at source, saying the clamp- down by Angkasa was not applicable to them as theirs was issued by the Ministry of Finance.
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