NPLs still manageable

Focus on savings as spending rises

PETALING JAYA: The usage of credit cards, the most expensive form of debt, is up but savings have generally remained flattish.

However, this is not a cause of concern, according to analysts, as banks’ non-performing loans (NPLS) are manageable, while Malaysia’s growth numbers are still looking good.

TA Research, in its recent review of September banking statistics, notes that yearly drawdowns for credit cards continued on a robust upward momentum to broaden at a faster pace of 15.5% year-on-year (y-o-y) or 1.2% month-on-month.

In terms of deposit growth by segment, current account savings account growth eased to 3.1% y-o-y in September 2022, while fixed deposits contracted 0.3.% y-o-y.

However, foreign currency deposits experienced a noticeable growth of 20.1% from a year ago in September following the weakening ringgit versus the US dollar,

“With the ending of the loan moratorium, the industry has been keeping a watch on banks’ NPLS and they are still manageable,” Rakuten Trade head of equity sales Vincent Lau told Starbiz.

While inflationary pressures could have played a part as things got more expensive, he said the country’s growth numbers are still looking good.

Exports are poised to pick up when China reopens gradually, while the labour market is also strong, added Lau.

From the consumer end, there could be various factors.

“The drawdown of savings could have

flowed into the local or US stock markets as share prices are at fairly attractive valuations, or into other types investments,” he added.

He noted that the high credit card debt is not unique to Malaysia and was the case too in countries like the United States where consumers are using “credit cards to stretch a bit more.”

Additionally, as the society moves into a cashless economy, e-wallet and credit cards are increasingly being used as payment vehicles and a source of short-term credit, he added.

According to him, people could also be using credit cards for travels with borders’ reopening or revenge spending after emerging from isolation post Covid-19.

“Bigger consumer items tend to flow through credit cards. However, it’s not a concern unless we see the overdue dates are going up. As of now, it’s not the case and we are positive on the banking sector,” said Lau

Areca Capital Sdn Bhd CEO Danny Wong said there is fierce competition for fixed deposits in recent months.

“Banks are rushing to lock in these fixed deposit (FD) rates in lieu of the potential hikes in the overnight policy rate (OPR), which currently stands at 2.75%.

“Banks are looking at a possible one of two more OPR hikes, and when this happens, they will have a big margin jump, if their loans are mostly on floating rate. So there is a fierce fight to lock in FD rates now, and we are seeing some cash migration here.”

Likewise, he said that the increase in credit card debt is aligned to the reopening of the economy with more travelling and spending to make up for lost time due to the pandemic.

Malaysia’s third-quarter (3Q) economy surprised on the upside with real gross domestic product growth accelerating to 14.2%, from 8.9% in the preceding quarter.

This was the strongest quarterly GDP performance reported since the second quarter of 2021 (2Q21), where the economy grew by 15.9%, analysts noted.

The strong growth was supported by private consumption, which grew by 18.3%, supported by the continuous improvement in the labour market where unemployment rate eased further from 3.9% in the 2Q22 to 3.7% in the 3Q22.

While the 3Q22 number was strong, headwinds are expected to kick in from 4Q22, said Ambank chief economist and head of research Anthony Dass.

According to him, the rising cost of living is still an issue, while food inflation is relatively high, increasing by 5.3% year-to-date.

“Price pressure in selected manufacturing sector is still elevated, partly due to shortage of key products and weaker currency.

“This also coincided with the purchasing managers index manufacturing number, that has been on a downward trend since July 2022. It dropped below the 50-level threshold since September 2022,” he said.

He said banks’ 2022 NPLS remained manageable despite the unwinding of loans repayment assistance offered to borrowers following the reopening of the economy since 3Q21.

“Banks have made ample pre-emptive provisions.

“But going forward, we need to watch the repayment side as to whether borrowers can pay in full or are dragging payments,” he added