Malaysian GDP grew 4.7% in Q1, 2012

Malaysia's economic growth slowed to 4.7 percent in the first quarter, the government said Wednesday, due to weakening exports sparked by a stuttering global economy and debt woes in Europe.

The slower expansion in the export-dependent Southeast Asian country came after the economy grew at a 5.2 percent clip in the fourth quarter of 2011.

Malaysia is one of the fastest growing developing countries

"Domestic demand remained firm, supported by both private and public sector economic activity, while exports moderated amid weaker external demand," Bank Negara, the central bank, said in a statement.

The bank has projected growth to expand four to five percent this year, slower than the 5.1 percent seen in 2011.

Economists said the slower growth indicated that the economy was "moderating at a better pace than expected" in light of the eurozone crisis.

"One of the headwinds hitting not just Malaysia but also regional economies is the very weak growth in Europe with some countries mired in recession," said Yeah Kim Leng, chief economist with financial research firm RAM Holdings.

"The concern here is of course the slowdown is affecting Asian exports including Malaysia, given its sizeable export sector."

But Yeah said he expected the Malaysian economy to grow at 4.6 percent in 2012, backed by strong domestic demand.

In early May, the central bank kept its key interest rate at 3.0 percent for the sixth time in a row to drive domestic demand.

Inflation was 2.3 percent in the first quarter and is expected to moderate to 2.5-3.0 percent for 2012 amid lower global commodity prices and modest growth in domestic demand.

The central bank said that while the challenging external environment would remain a risk to Malaysia's growth prospects, "domestic demand is expected to remain resilient".

Prime Minister Najib Razak, who must call fresh elections by April 2013 and faces a strengthening opposition, has set a goal of Malaysia becoming a "high-income developed nation" by 2020.

He said last year that annual growth of at least 6.0 percent was needed to achieve that.

Under the plan, Najib aims to double per capita income to 48,000 ringgit ($16,000) by 2020.

The government has promised major infrastructure projects and financial market liberalisation to attract foreign investment and boost growth, but critics say the results have been limited.

Malaysia's household debt rise a concern

PETALING JAYA: While not an imminent danger, the level of household debt is of concern and warrants close monitoring, RAM Ratings head of financial institution ratings Wong Yin Ching said,

The nation’s household debt as a percentage of gross domestic product (GDP) had risen to 77% as at end-2011 compared with 69% at end-2006, and its household debt-to-GDP ratio was considered high when compared with other countries in the region, especially in relation to GDP per capita.

Wong was speaking to StarBiz after the release of the rating agency’s Banking Bulletin 2012. Home loans remained the largest component, contributing about 45% of the total household debt, she added.

However, unsecured financing in the form of personal loans and credit-cards had been growing rapidly, accounting for about 15% and 5% of total household debt, respectively.

Development financial institutions, cooperatives and building societies that offer personal financing facilities to civil servants under salary-deduction schemes contributed to the bulk of the growth, she noted.

“We view positively Bank Negara’s various pre-emptive measures implemented since late 2010 to rein in growth in household debt and safeguard the soundness of the financial system.

“On top of the tighter measures on residential property financing, stricter guidelines have also been implemented on credit cards, such as increasing the income eligibility criteria.

“We do not discount additional prudential regulations to be imposed in future,” Wong said.

Effective Jan 1, banks are required to use net income calculation method instead of gross income when computing debt-service ratio.

Wong added that unemployment rate was still relatively low at 3% and the credit quality of household sector was also healthy, with a low gross impaired-loan ratio of 1.8% as at end-January 2012 (end-2010:2.3%).

Nevertheless, she said the debt-servicing ability of households in the lower-income segment might be more vulnerable to economic down-cycles, greater variability in income and inflationary pressures.

On loan growth, RAM Ratings expects the overall banking system’s loan growth to taper to about 8% to 9% this year, after clocking in a strong 14% expansion in 2011. This is supported by a projected 4.6% real GDP growth this year, which is slightly lower than the 5% in 2011.

Private investments, she said were expected to remain strong, although a weakening in global demand would have some bearing on export performance.

Wong anticipates the central bank to remain accommodative in its monetary policy by maintaining the overnight policy rate at 3% with a downside bias in 2012, as preserving growth momentum would take precedence over curbing inflationary pressures.

While a more moderate household loan growth was anticipated due to the prudential regulations introduced, she added this would be balanced by stronger financing demand from the commercial and corporate sector from the rollout of projects under the Economic Transformation Programme and 10th Malaysia Plan.

For non-performing loans this year, she said the industry’s gross impaired-loan ratio was expected to be kept healthy this year, with a slight uptick to about 3% from the current all time low level of 2.7%.

“In terms of capitalisation, all the domestic, all the domestic banks were well poised to meet the new capital requirements under Basel III, of which the implementation would be phased in from 2013,” she added.

Although these new capital measures would elevate banks’ funding costs, which may in turn be passed on to consumers, it would ensure the banking sector was safeguarded against unexpected shocks, Wong said.

As at end-January, the banking system’s capitalisation was strong with a tier-1 risk-weighted capital adequacy ratio of 12.9%.

Banks’ profitability, she said had been on a steady rise over the last couple of years on the back of strong loan growth, benign loan impairment charges and growing fee income. However, net interest margins (NIMs) had been under pressure due to stiff price competition, particularly in certain loan segments such as residential mortgages.

NIM is a measure of the difference between interest income generated by banks and interest paid out to depositors.

Source: By DALJIT DHESI  daljit@thestar.com.my

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Credit Suisse cuts M’sia GDP forecast

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By JEEVA ARULAMPALAM jeeva@thestar.com.my

It says Asian growth set to slow more sharply

PETALING JAYA: Credit Suisse AG has cut its real gross domestic product (GDP) 2011 growth forecast for Malaysia to 4.6% from 5.3%, as the Western world is teetering on the brink of recession and large parts of Asia remain highly susceptible to growth developments in the United States and Europe.

It also cut its 2011 GDP forecast for other Asian economies such as Thailand, Hong Kong and South Korea.

In an economics research yesterday, Credit Suisse said Asian growth was set to slow more sharply over the coming months.

 “With the fiscal support provided during the global financial crisis removed and the lagged effects of higher interest rates working their way through, we had expected the Asian economies to soften from second quarter of 2011.

“Now that the Western world is teetering on the brink of recession we believe the outlook has dimmed further,” it said.

In addition to cutting its GDP forecast for this year, Credit Suisse trimmed next year's forecast to 4.8% from 5.8% previously. The new 2011 and 2012 GDP forecasts imply annualised sequential growth rates of an average 3.5% in the second half of this year and 5.5% for next year.

“What has kept us from cutting our growth forecasts further is the likely support from domestic demand. We think more investments from the Economic Transformation Programme (ETP) should come onstream, especially in the oil and gas sector which benefited from high oil prices.

“Also, the Government has underspent its budget in the first half and we expect it to increase spending in the second half to meet its target,” it said.

It added that some factors that exacerbated the slowdown in the second quarter were likely to be temporary but Credit Suisse did not expect domestic demand to be shielded from a further weakening in external demand.

“Moreover, Malaysia's growth is vulnerable to a collapse in commodity prices if this were to happen,” it said.

In the report, Credit Suisse said it expected Bank Negara to keep the overnight policy rate unchanged at 3% until the end of next year (it previously expected one 25 basis points hike).

With the global growth outlook highly uncertain and inflation slowing, it suspects that the central bank will be in no hurry to raise the overnight policy rate further. However, a severe global recession could see rates being cut.

“In contrast, we think there is little scope for the Government to stimulate the economy through fiscal policies above and beyond the existing high deficits they projected (5.4% of GDP for 2011).

“Even as things stand now, Malaysia would probably need to undertake significant fiscal adjustments over the next decade if it wants to bring its relatively high debt to GDP ratio down.

“A prolonged weakness in growth would increase the risk that the Government would further delay its plan to cut subsidies and raise the consumption tax,” it said.

Bank Negara is maintaining its GDP forecast of 5% to 6% for the full year as it expects strong domestic demand and ETP projects to fuel economic growth in second half of the year. Malaysia's second-quarter GDP moderated to 4%, compared with 4.9% in first quarter, dampened by a slowdown in the manufacturing sector and weaker external environment.

AmResearch Sdn Bhd, in a report last week, said that while it expected a full-year 5% growth rate to be achieved given the current climate, possible trigger points for a downgrade included an adverse impact of a very large drop in crude oil prices and any further delay in the ETP projects.

“As a net exporter of oil, Malaysia still relies heavily on crude oil in terms of generating income for the country. As long as the full-year average lies between US$85 and US$90 per barrel, all is well and within budget.

“On a positive front, a sharp fall in crude oil may well mean a reduction in total subsidies spent by the Government. The net impact will, however, be detrimental to the Government's coffers and overall growth,” AmResearch director of economic research Manokaran Mottain said in his report.

For latest GDP reports from the Statistics Department click here  

Malaysia's GDP Growth Falters to 4% in Q2 2011

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Q2 GDP moderates to 4%

By CECILIA KOK cecilia_kok@thestar.com.my

KUALA LUMPUR: Malaysia's economic growth moderated to 4% year-on-year (y-o-y) in the second quarter (Q2) of the year, after a revised growth of 4.9% y-o-y in the preceding quarter due to a weaker external environment.

The country's gross domestic product (GDP - goods and services produced within the country) growth rate for the three months to June, however, was higher than market expectations of 3.6% based on Bloomberg's poll of 16 economists.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said Malaysia's overall economy continued to be sustained by healthy domestic demand and strong exports of commodity and resource-based products amid slower global growth.

Domestic demand in Malaysia during the second quarter grew 5.2% y-o-y due to sustained growth in private spending.

Private consumption remained healthy amid robust labour market conditions, while private capital spending was sustained by expansion in production capacity and investment in new growth areas.

“Based on the growth we have achieved so far, it is likely that Malaysia's GDP for the full year would expand by at least 5%,” Zeti told a press conference here yesterday. She said it was still too early to revise the country's GDP growth forecast.

Malaysia's GDP for the first half of the year grew 4.4% y-o-y, compared with 9.5% y-o-y in the corresponding period last year. The official GDP growth target for the year was between 5% and 6%.

If there was a need for revision, it would be done during the Budget period in October, Zeti said, while emphasising that the central bank remained watchful and was closely monitoring the global economic developments.

“If we have a situation where the United States and Europe slipped into a recession or any other trigger factors that could result in the disruption in international financial markets, we will have to make a reassessment,” Zeti said.



Bank Negara highlighted the fact that global growth had moderated since the second quarter of the year due to a various factors, including fiscal issues and structural weaknesses in advanced economies and global supply chain disruptions stemming from the March 11 earthquake and tsunami in Japan.

These challenges, as the central bank revealed, were reflected in the slower growth in Malaysia's manufacturing sector at 2.1% y-o-y during the second quarter, compared with 5.5% in the preceding quarter.

Zeti conceded the downside risks to Malaysia's external demand had increased following heightened uncertainties in external demand. In the immediate term, she said, fiscal uncertainties and structural weaknesses in advanced economies would continue to challenge global growth and increase volatility in global financial markets.

“Categorically, we have to say we have a strong domestic economy... our fundamentals are strong enough to support our economy,” Zeti said, stressing that a contraction of Malaysia's economy was not to be expected despite the deepening euro debt crisis and sluggish growth in the United States.

CIMB Research, in its report yesterday, expressed optimism that Malaysia's economy would remain in the positive growth trajectory. The research house said the stepping up of government capital spending in the second half and the continued vigour of private capital spending would sustain the momentum of the country's economy.

“We maintain this year's GDP growth estimate at 5%, implying an average growth of between 5% and 5.5% in the second half, compared with 4.5% in 1H11,” CIMB Research said in its report.

Bank Negara also highlighted that the country's inflation, as measured by the consumer price index (CPI), had eased marginally last month. CPI for July gained 3.4% y-o-y, compared with 3.5% y-o-y.
Zeti said Malaysia's full-year CPI would remain within target of 2.5% to 3.5%.

Ex-BNM assist governor among 2 Aussie firms & 6 charged with bribery in banknote scandal!

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Ex-BNM assistant governor charged

By LISA GOH and NURBAITI HAMDAN lisagoh@thestar.com.my 

KUALA LUMPUR: Former Bank Negara assistant governor Datuk Mohamad Daud Dol Moin, 58, has claimed trial at a Sessions Court here to two counts of accepting bribes amounting to RM100,000 from a businessman to help procure a contract from the central bank.

The contract was to print RM5 polymer bank notes by Note Printing Australia Ltd.

Dressed in a dark suit, he calmly pleaded not guilty when the charges were read out to him at about 11am yesterday.

He was accused of receiving two bribes of RM50,000 from Abdul Kayum Syed Ahmad at Dome Restaurant, Bangsar Shopping Centre, on Dec 1, 2004, and Feb 16, 2005.

If convicted under Section 11(a) of the Malaysian Anti-Corruption Commission Act, he can be jailed up to 20 years and fined five times the bribe amount, for each charge.

Out on bail: Mohamad Daud (centre) being escorted out of the court Friday. — Bernama

 

According to the Malaysian Anti-Corruption Commission, the contract was worth about RM95mil.
DPP Manoj Kurup prosecuted while lawyers Collin Goonting and J.D. Goonting stood for the accused.
The prosecution suggested a bail of RM100,000, with one surety and the defence lawyers had no objections.

Bail was granted and judge Rosbiahanin Arifin fixed Aug 2 for mention.

Mohamad Daud, who joined Bank Negara in 1975 and retired as the assistant governor on May 1, 2009, was then taken to the Shah Alam court complex for another charge.

In SHAH ALAM, businessman Abdul Kayum claimed trial at the Sessions Court to two counts of bribing Mohamad Daud with RM100,000 as an inducement to secure a contract for the printing of the RM5 polymer notes in December 2004.

Abdul Kayum, 62, pleaded not guilty before judge Asmadi Hussin. He was charged under Section 11 (b) of the Anti-Corruption Act and faces a maximum 20 years' jail and fines five times the bribe amount.

The offences were allegedly committed at the EON Bank, Jalan Taipan in Subang Jaya on Nov 24, 2004 and Feb 15, 2005. He was arrested on July 5 last year.

DPP Manoj offered bail at RM100,000 but defence counsel Gurbachan Singh asked for RM15,000.
He said Abdul Kayum was now unemployed and had a wife and three schoolgoing children.

The court fixed bail at RM50,000 with one surety and set Aug 2 for mention.

Meanwhile Bank Negara has made it clear that it does not condone any misconduct by its employees.
“The central bank upholds the highest standards of integrity and professionalism in carrying out its roles and functions.”

In a statement late yesterday evening, Bank Negara also said it had been cooperating fully with the Malaysian Anti-Corruption Commission and other agencies in their investigations.

Two banknote firms and six ex-employees charged

SYDNEY: Two banknote firms linked to Australia's central bank and six of their former employees were charged with bribing Asian officials to secure contracts to print their currencies.

Australian Federal Police said the charges against the men and currency companies Securency International and Note Printing Australia (NPA), relate to alleged bribes given to officials in Indonesia, Malaysia and Vietnam.

Police said that during the period 1999 to 2005, the senior managers from Securency and NPA were believed to have utilised international sales agents to bribe foreign public officials in order to secure banknote contracts.

The Reserve Bank of Australia (RBA) said it deeply regretted that the governance arrangements and processes in the companies at that time were not able to prevent or detect the alleged behaviour.

Governor Glenn Stevens said controls at both firms had been overhauled since the scandal broke two years ago, adding that all those charged no longer worked with the companies and the use of sales agents had stopped.

Securency, which is partly owned by the RBA and produces polymer banknotes used in more than 30 countries, said it had been charged with three counts of conspiracy to influence foreign officials.

The company said it was cooperating fully with authorities and considering its legal position.

NPA, a wholly owned RBA subsidiary responsible for running the printing works where Australia's banknotes are printed, made no immediate comment.

Police said that, in Indonesia, a foreign official allegedly received a bribe to ensure a joint venture banknote contract for Securency and NPA, while in Malaysia a bribe was allegedly used to win a contract for NPA.
In Vietnam, an official allegedly received a bribe paid in the form of a university scholarship to secure a banknote contract on behalf of Securency.

Police Commander Chris McDevitt said the six Australians charged, aged between 50 and 66, had been chief executives, chief financial officers or sales agents for Securency or NPA. - AFP

The untold story of Malaysia foreign exchange controls

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Book reveals how Malaysia beat currency speculators in 1997/98 crisis
By Thean Lee Cheng, Starbiz

 
Nor Mohamed (left) and Wong at the book launch

KUALA LUMPUR: Former Prime Minister Tun Dr Mahathir Mohamad toyed with the idea of exchange controls as early as May 1998 but was met with resistance from within the National Economic Advisory Council, the Cabinet and the central bank.

This was revealed in Notes to the Prime Minister, a new book that chronicles one of the biggest challenges and triumphs in Dr Mahathir's 22 years as Malaysia's Prime Minister.

Notes to the Prime Minister: The Untold Story of How Malaysia Beat the Currency Speculators was launched yesterday in Kuala Lumpur by Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop. Tun Dr Mahathir was not present as he was advised by doctors to rest at home.

The book, published by MPH Publishing, is based on 45 sets of notes written between Oct 3, 1997 and Aug 21, 1998 by Nor Mohamed when he became Dr Mahathir's unofficial and unpaid economic adviser.

The Asian financial crisis, which first engulfed Thailand in the middle of 1997, hit Malaysia soon after. Selective capital controls were imposed on Sept 1.

The book is written by veteran journalist Datuk Wong Sulong, the former business editor and group chief editor of The Star.

In an excerpt from the book, Dr Mahathir told Wong that he decided on foreign exchange controls “after Nor Mohamed explained to me how currency trading works ... millions and millions of ringgit can be transferred from a domestic account to a foreign account by a stroke of a pen ... I realised that foreign currency trading can be stopped by stopping this balance transfer.



“But I must say it was not as easy as that. We needed to do a lot of background work and monitoring and Bank Negara (needed to) set up many committees to do that to ensure that the controls were effectively implemented. (Tan Sri) Dr Zeti (Akhtar Aziz, then deputy governor of Bank Negara) did a lot in that respect and also in the economic recovery.”

Notes to the Prime Minister is not only a valuable lesson on how Malaysia took unorthodox steps to solve the Asian financial crisis but it is also a story of how two Malaysians met halfway around the world and came up with the Malaysian solution to the Asian financial crisis.

It is an intriguing story of how Nor Mohamed, then chief executive officer of Mun Loong Bhd, was summoned by Dr Mahathir to meet him in Buenos Aires, Argentina, on Oct 2, 1997. The first set of those notes was written a day later, on Oct 3.

Prior to this unique flow of notes, Nor Mohamed was a Bank Negara adviser.

His expertise in foreign exchange landed him and then Bank Negara governor Tan Sri Jaafar Hussein in trouble. Both of them resigned to take responsibility for Bank Negara's speculation on foreign exchange losses that went into billions of ringgit in the early 1990s. Nor Mohamed joined the private sector after that.

Said Nor Mohamed at the launch: “We learn in history that sometimes the lives of individuals and the fate of nations hinge on a millimetre's difference in the trajectory of a bullet, a road not taken on a whim, or the random stray of a shrapnel.

“In my case, my fate was sealed ... by the turn of a head Tun Dr Mahathir's ... It was a sunny afternoon in September 1997, when the PM's motorcade was speeding along the streets of Kuala Lumpur.

“At one junction, as the motorcade slowed, Tun Dr Mahathir turned his head to look out. And he saw a forlorn-looking man walking towards a row of shops for lunch. That forlorn-looking man was me!”

Nor Mohamed was summoned a few days later to go to Argentina. In April 1998, Nor Mohamed resigned from Mun Loong to concentrate on being Dr Mahathir's unofficial adviser.

During that period of assessement, Nor Mohamed went to Singapore to observe the operations of Central Limit Order Book (CLOB), a board on the Singapore Stock Exchange which dealt with a great number of Malaysian shares. Dr Mahathir felt that Malaysia's currency crisis could not be solved as long as CLOB exists.

Dr Mahathir, aware that his adviser was unemployed, asked: “Do you have money to go down to Singapore?” Nor Mohamed laughed and assured him that the trip would not cost a lot of money. The rest, as they say, is history.

As for Wong, who shares a deep liking for Nor Mohamed, he was asked by his friend to write the book.

“I felt a sense of excitement and a heavy responsibility. These notes had never seen daylight and it shed a new light (on more than just the economic and political aspects of this country). You have to tell a story as honestly as possibile, but not technically, because it has to appeal to the average reader. So that was my dual challenge.”

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Capital controls: From heresy to orthodoxy