Con­tin­gent li­a­bil­i­ties growth have slowed

> Gov­ern­ment guar­an­tees have come down com­pared with the first few years of ETP, says Moody’s

The Sun (Malaysia) - - SUNBIZ - BY EE ANN NEE

KUALA LUMPUR: Moody’s In­vestor Ser­vice said growth in gov­ern­ment con­tin­gent li­a­bil­i­ties have slowed from the first few years of the Eco­nomic Trans­for­ma­tion Plan (ETP).

Its Sin­ga­pore-based vice-pres­i­dent and se­nior credit of­fi­cer Chris­tian de Guz­man said the growth in gov­ern­ment guar­an­tees has come down com­pared with the first few years of the ETP where many gov­ern­ment guar­an­tees were is­sued.

“That slowed down a bit with the MRT pro­ject where the gov­ern­ment would not pro­vide guar­an­tees, lim­it­ing the con­tin­gent risks to the gov­ern­ment. When we look at the gov­ern­ment ac­counts (debt) and its share of GDP, we didn’t see the pick-up like in the first few years of the ETP,” he said at a me­dia round ta­ble ses­sion here yes­ter­day.

“That’s one as­pect. It is also un­fair to say that if any of these projects were to run into fi­nan­cial dif­fi­cul­ties, the gov­ern­ment would not come to its aid, given the im­por­tance,” added de Guz­man.

“We’re aware that the gov­ern­ment is look­ing to slow it down be­cause there’s a lot of con­cern ex­pressed on con­tin­gent risks ris­ing.”

Mean­while, Moody’s In­vestor Ser­vice global head of Is­lamic fi­nance Khalid Fer­dous Howladar said the Em­ploy­ees Prov­i­dent Fund’s (EPF) al­lo­ca­tion of RM100 bil­lion to Sim­panan Syariah, a new Is­lamic fund ded­i­cated to syari­ah­com­pli­ant in­vest­ments, will likely boost de­mand for sukuk and syari­ah­com­pli­ant se­cu­ri­ties.

This al­lo­ca­tion, rep­re­sent­ing 15% of EPF’s in­vest­ments, would cre­ate the largest stand­alone Is­lamic pen­sion fund glob­ally; and such stand­alone funds are rare in the in­dus­try.

“When ex­ter­nal in­vestors see that (EPF par­tic­i­pat­ing in the Is­lamic fund), that may en­cour­age them to is­sue sukuk, know­ing that some­body has an ex­plicit al­lo­ca­tion. All of these help to boost de­mand, which is al­ways pos­i­tive for the sukuk sec­tor,” said Khalid.

He said re­turns are broadly fall­ing and Malaysia is not im­mune to that.

“Whereas in other coun­tries you have a much limited uni­verse of in­vestable syari­ah­com­pli­ant as­sets, in Malaysia there’s a deep base of cor­po­rate sukuk, bank sukuk, gov­ern­ment sukuk so syariah-com­pli­ant lim­i­ta­tion shouldn’t in­hibit re­turn tar­gets,” ex­plained Khalid.

Sin­ga­pore-based Moody’s In­vestor Ser­vice vice-pres­i­dent and se­nior an­a­lyst Simon Chen said it con­tin­ues to have a sta­ble outlook on the Malaysian bank­ing sys­tem.

“More chal­leng­ing op­er­at­ing con­di­tions are cre­at­ing more down­side risks for banks in terms of as­set qual­ity and prof­itabil­ity. What’s off­set­ting these neg­a­tive pres­sures are the strong cap­i­tal lev­els and sta­ble liq­uid­ity pro­files of Malaysian banks, given that these banks are pri­mar­ily de­posit­funded,” said Chen.

He said banks are en­ter­ing a pe­riod of slower growth do­mes­ti­cally and are fac­ing slower ex­ter­nal growth con­di­tions and weaker ex­ter­nal de­mand. These pres­sures are also weigh­ing on sen­ti­ment in the Malaysian pri­vate sec­tor and are trans­lat­ing into slower loan growth over the next 12 to 18 months.

On a pos­i­tive note, Chen said the slower growth that banks will ex­pe­ri­ence will en­able them to main­tain sta­ble fund­ing pro­files and their strong cap­i­tal lev­els.

On high house­hold debt in Malaysia, he said what is sup­port­ing the debt ser­vice­abil­ity of con­sumers are sta­ble em­ploy­ment con­di­tions un­der­pin­ning the sta­ble house­hold in­come.

“Un­til we see some in­dus­try-re­lated blow-ups that might lead to desta­bil­i­sa­tion of em­ploy­ment con­di­tions, we think that the house­hold debt is­sue trans­lat­ing into as­set qual­ity pres­sures for the banks con­tin­ues to be more of a tail risk event,” said Chen.

De Guz­man (left) and Khalid dur­ing a round ta­ble pro­vid­ing an up­date on Malaysia's sovereign rat­ing and bank­ing sec­tor views and outlook in Kuala Lumpur yes­ter­day.

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