Barely a week after several bank chief executives came out strongly to allay fears that they were not pulling the plug on share margin financing, Hong Leong Bank Bhd has come under fire for continuing to maintain a very long list of so-called “non-marginable'' stocks.
Market sources say the list covers close to half the stocks listed on Bursa Malaysia. They say it comprises some very large-cap stocks, profitable companies, all the stocks on Mesdaq and several more of the penny stocks.
The comment made by Prime Minister Datuk Seri Abdullah Ahmad Badawi yesterday that Hong Leong Bank had an “unacceptable'' list of stocks excluded from its share financing service took many by surprise.
They are wondering why the PM was singling out a banking group when most banks and stockbroking houses that provide margin financing do have a list.
Some attributed the reason to the purported complaints by some of the profitable companies on the bank’s list.
“The bank may have over-reacted and by putting some profitable companies on the list, it may be damaging the names of these companies,’’ a source said.
However, he pointed out that fundamentals could be one thing, liquidity of the shares and free float was another consideration.
“What also irked some investors was that the bank’s research arm had earlier recommended a “buy’’ and “hold’’ recommendation for some of the stocks on the list; days to weeks later, when share prices began to drop, the bank decided to override the stock recommendations and sold the stocks just because they fell below a certain level,’’ a source said.
A random check by StarBiz reveals most banks and brokerages are still maintaining their share margin financing.
“At CIMB, we want to grow our margin financing from RM150mil to RM500mil,'' said Datuk Nazir Razak. “All stocks are marginable but we have a maximum price for which margin financing is extended. When investing, people should look at the fundamentals and not go in at inflated values.''
“We see some oversold stocks by excessively concerned people,'' he told StarBiz.
A representative for a sizeable local bank added: “We have not suspended or withdrawn our share margin finance facilities but we would study the profile of an investor or even a company before lending.
“To us, share margin financing is really not a big business.’’
He said his banking group would also not give 48 hours or even one week to make good the account if there was a drop in the related share price.
Industry sources said all banks and brokerages that provide share margin financing had lists, which some say were used as a guide. It does not mean that all the stocks listed are “non-marginable''.
But the recent spate of limit-downs and share price falls has led many to say that it was due to the banks and brokerages pulling back credit lines. Market talk is that some of the foreign banks are not willing to extend margin financing to new lenders.
“But what is arguable is the cap (the maximum price for which margin financing is extended) that Hong Leong Bank uses. It may have very strict internal guidelines to protect its interests and if the price goes lower, or it turns more cautious than normal, it could sell the shares,’’ a source said.
Hong Leong Bank executives, when contacted, said they would be making a statement at an appropriate time.
Many wonder why the plug was suddenly pulled from the borrowers?
It is a combination of several factors, prices became inflated or the bank may be reviewing the risk profile of the clients concerned.
Observers point to the lag in time for regulators to step in and check the rapid price movements. As the continuing debate even at the Singapore Stock Exchange, there is the “expectations gap'' in the function of a listed stock exchange that, at the same time, has to regulate the stock market.
People familiar with regulations point out that there could be stop gaps in between rapid price movements, only thing is, they warned: “Don't start complaining of technical hitches.''
AmResearch Sdn Bhd executive director Gan Kim Khoon notes: “You have to understand the viewpoint of the banks, too. They have an obligation to their shareholders and it is really about striking a balance between doing business and protecting their assets.''
Industry-wide, loan exposure to share margin financing is at only 4% or about RM19bil of the total loans of RM522bil.
But there are concerns that earnings of banks could be negatively affected, as large provisions would have to be made to cover any losses.
“If a bank has a non-performing loan, who is going to take care of that? So it is really about credit quality and protection of capital, that is why banks are sometimes hard on their customers,'' a banker said.
But what if that is dampening market sentiment?
“It is one of the many factors – fundamentals, corporate earnings that have been generally disappointing for the first quarter and a few other issues,’’ said Gan.