Highlights of Bank Negara Malaysia Annual Report 2017


Highlights of Bank Negara Malaysia Annual Report 2017

* Economy to grow between 5.5% and 6% in 2018 versus 5.9% in 2017.

* Services sector to see lower growth of 6.1% from 6.2% in 2017.

* Manufacturing sector to grow slower at 5.9% from 6% in 2017.

* Stronger growth for construction sector at 7.3% from 6.7% in 2017.

* Mining sector to see higher growth at 1.8% from 1.1% in 2017.

* Slowdown in agriculture sector growth to 3.6% in 2018 from 7.2% in 2017.

* Private consumption growth sustained at 7.2% in 2018.

* Unemployment 3.2% to 3.5% from 3.4% in 2017.

* Private investment sustained at 9.1% in 2018.

* Public consumption to grow a marginal 0.6% in 2018

* Public investment to decline by 3.2% due to lower capital spending by public corporations

* Current account balance surplus of 2.0% to 3.0% of gross national income (GNI) in 2018.

* Gross exports and gross imports to grow 8.4% and 8.6%.

* Goods surplus in the Balance of Payments to rise to RM120.5bil.

* Services account to record slightly higher deficit of RM23.2bil.

* Primary income deficit to rise to RM39.1bil as locally-incorporated multinational corporations continue to earn sizeable profits, especially in the manufacturing sector.

* Secondary income account to register a larger deficit of RM19.3bil due to higher outward remittances by foreign workers.

* Semiconductor exports to strongly benefit from increased usage in automobiles and consumer electronics such as connected devices and smart appliances.

BANKS

* Banking sector’s profitability improved, due to slower growth in interest expenses and higher fee-based income from financing-related activities and stock broking activities.

* Banks’ average returns on equity and assets rose to 13% and 1.5% respectively. 

* Banking system loans grew at a slower pace of 5.1% in 2017 (2016: 5.3%)

* Outstanding financing by banks grew 4.1% to RM1.584 trillion in 2017, driven mainly by financing to households and small and medium enterprises.

* Malaysia’s debt securities market grew 10.1% to RM1.3 trillion or 97.6% of GDP in 2017.

BANKS’ EXPOSURE TO OIL GAS, PROPERTY SECTORS

* Outlook for O&G and real estate sectors to remain challenging in 2018. 

* Banks’ domestic exposures (including off-balance sheet exposures) to firms in O&G-related sectors accounted for about 6% of domestic business exposures or 14.5% of total capital of the banking system in 2017.

* Certain O&G companies’ financial position continued to deteriorate, particularly firms heavily exposed to the upstream segment. Median interest coverage ratio (ICR) for the sector at 2.9 times (2016: 5.4 times).

* In 2017, debt-at-risk (measured as the share of debt borne by firms with an ICR of less than two times) increased to 22.1% (2016: 18.2%) of total debt owed by O&G firms.

* Property developers’ debt servicing capacity underpinned by a reasonably healthy median ICR of 6.2 times on aggregate in 2017 (2016: 5.4 times). 

* Property developers’ profitability fell with operating margin at 16.2% in 2017 (2016: 18.0%). 

* Smaller developers (property developers with total assets below the median total assets of players listed on Bursa Malaysia, accounting for 10% of total assets of listed players) recorded lower operating margins (2017: 8.2%; 2016: 9.4%). 

* Property developers’ liquidity position improved to 0.9 times (2016: 0.8 times). Debt-at-risk for the real estate sector increased to 12.4% (2016: 7.9%), for the 12 months ending December 2017. 

* Risks to domestic financial stability arising from exposures to property developers remained minimal.

* Under a worst-case scenario, banks have sufficient buffers to absorb potential cumulative losses of RM85bil arising from the direct exposure and spill-overs to the related property sector.

HOUSEHOLD DEBT

* Annual growth of total household borrowings fell to 4.9% (2016: 5.4%; 2010: 14.2%) to RM1.139 trillion. 

* As a share of GDP, total household debt declined further, although it remained high at 84.3% in 2017 (2016: 88.3%).

* Excluding non-bank financial institutions (NBFIs), total banking system loans extended to households declined to 69.3% of GDP (2016: 72.7%). 

* Ratio of total household assets-to-debt remained high at about four times (2016: 3.8 times). 

* In 2017, growth of 8.6% (2016: 5.3%) in household financial assets outpaced that of debt for the first time since 2012. 

HOUSES REMAIN UNAFFORDABLE

* Houses remained unaffordable especially in key employment centres. High number of unsold residential properties priced at RM250,000 and above.

* Unsold housing units increased on an annual basis by 22.7% (2016: 41%) to 129,052 units as at end-September 2017. 

* More than 80% of the unsold units priced at RM250,000 and above. High-rise residential properties and were mainly in areas far from major economic centres and with limited public transport facilities. 

* In 2017, total exposures of Malaysian financial institutions to the domestic property market expanded by 7.1% (2014-2016 average: 12.5%) to RM850.3bil.

* Total exposures of Malaysian financial institutions to the domestic property market accounted for 27.4% (2016: 26.7%) of their total assets as at end-2017. 

* Banks remained largest lenders to domestic property market. Out of RM817.3bil of banks’ exposures to the property market, about 90% was related to end-financing for the purchase of residential and non-residential properties. 

OFFICE, RETAIL PROPERTIES

* In 2017, banks’ end-financing for the purchase of non-residential properties was RM213.4bil (2016: RM209.1bil), with an annual increase of 2.1% (2016: 6.1%). They accounted for 26.1% of banks’ exposures to the property market or 13.5% of banks’ total outstanding loans. 

* End-financing for the purchase of shops accounted for the bulk (40%) of banks’ exposures to non-residential properties or 5.4% of banks’ total outstanding loans. 

* Exposures (via end-financing) to the office space and shopping complex segments, where oversupply is particularly acute, accounted for 3.2% of banks’ total outstanding loans.

* Incoming supply of 38 million square feet of new office space in Klang Valley is expected to drive vacancy rates to an all-time high of 32% by 2021.

* Incoming supply of 140 new shopping complexes by 2021 across Klang Valley, Penang and Johor is expected to worsen the oversupply condition.

* Average rental rate of office space in the Klang Valley remained depressed at RM5.83 (2016: RM5.94) per square foot per month

LOW WAGES

* Malaysia risks being trapped in a low-wage, low-skill conundrum. Current wages in Malaysia may be too low to attract local workers especially in the 3D jobs.

* Reforms in the existing levy system can help disincentivise low-cost operations and prod ?rms to reduce dependence on foreign workers over time. 

E-PAYMENTS

* E-payment transactions per capita has more than doubled to 111 (2011: 49). Cheque volume fell by 41.9% to 119 million or four cheques per capita (2011: 204.9 million or seven cheques per capita).

Bank Negara to focus on initiatives to promote mobile payments to complement debit cards in displacing cash.


Banking , Economy

   

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