Contingent liabilities growth have slowed
> Government guarantees have come down compared with the first few years of ETP, says Moody’s
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.