Najib growth push stymied by Malaysian banks

[KUALA LUMPUR] Malaysian banks turning cautious on lending are adding to Prime Minister Najib Razak's woes as economic growth falters.

A sell-off in the ringgit and added volatility in global stocks after Donald Trump's victory in the US presidential elections give Malaysian banks no incentive to step up appetite for risk.

Loan growth will likely weaken to at least a 12-year low in 2016, according to projections by AmInvestment Bank Bhd and RHB Research Institute Sdn and data compiled by Bloomberg.

Once among Southeast Asia's powerhouses, Malaysia's economy is faltering with the World Bank forecasting growth of less than 5 per cent from 2016 to 2018.

Expansion was probably unchanged at 4 per cent last quarter, according to a Bloomberg survey, as the slump in commodity prices curtail government spending and credit growth weakens.

"What is worrying to us is tightness of credit," said Weiwen Ng, an economist at Australia & New Zealand Banking Group in Singapore. "Appetite for loans still remain weak while banks are cautious of nonperforming loans, hence they are wary of lending."

PROPERTY, CAR LOANS

Risks to global growth are crimping Malaysian companies' appetite to borrow and spend. Banks are also wary of lending more to households, already one of the most indebted in Asia.

Malaysia also has to contend with a funding scandal surrounding the premier that's being investigated by authorities around the world. To retain support, Najib last month allocated more funds for the poor, promised civil servants a bonus and introduced extra assistance for farmers.

Growth slid to 4 per cent in the second quarter, the slowest pace since at least 2011. The central bank is scheduled to release third-quarter data on Friday.

Mr Trump's victory adds to uncertainty and clouds the outlook for emerging-market assets, such as the ringgit, which fell as much as 0.9 per cent against the dollar on Wednesday.

Loans will probably rise 5 per cent to 6 per cent this year and next, AmInvestment forecast. That would be the slowest since at least 2004, according to data compiled by Bloomberg. RHB Research estimates growth of 4.3 per cent this year.

"Corporates are more careful in terms of their investments and at the same time, households are quite highly leveraged so the growth even from the household sector has also slowed down," said Fiona Leong, an analyst at RHB Research Institute Sdn. in Kuala Lumpur.

Mortgages are also weakening following the central bank's cooling measures on the property sector while car loans have faltered, said Kelvin Ong, a banking analyst at AmInvestment Bank Bhd. in Kuala Lumpur.

COMMODITY PRICES

Supporting Malaysia's growth prospects is the recovery in commodity prices and the central bank's easing policies this year, said Michael Wan, an economist at Credit Suisse Group AG in Singapore.

The central bank delivered a surprise rate cut in July, and reduced the statutory reserve ratio earlier this year."Financing conditions for companies should be easier in the next six months and the rate cut should translate to lower debt costs," Mr Wan said.

The government's ability to spend is curtailed by a collapse in global crude prices that eroded revenue and a need to gradually balance a budget deficit, which the country has been running since 1998.

BLOOMBERG