Banking Crisis Will Burden Future Generation

Oxford Analytica, 09.04.10, 06:00 AM EDT

Ireland's debt is accumulating

The Standard and Poor's (S&P) downgrade of Irish sovereign debt to AA- on Aug. 25 was consistent with the other rating agencies, yet it had a greater effect on market sentiment. This is largely a question of timing--in the weeks since the Moody's downgrade on July 19, the extent of Ireland's banking crisis has become better understood.

The Irish banking sector faces several problems:

--Asset write-downs. The scale of asset write-downs and debt defaults to which Irish banks, building societies and firms are subject has grown as assessments of the residential and commercial property and development portfolios of institutions have come to light.

--Banking crisis. Although no Irish bank failed the stress tests of 91 European banks, the European Commission approved 24.3 billion euros ($31.1 billion) to support the nationalized Anglo Irish Bank on Aug. 10. Three weeks later, on Aug. 31, Anglo Irish Bank reported the worst half-year results in Irish corporate history--a loss of 8.2 billion euros. The European Commission is expected to rule in the next few weeks on the Irish government's plan to split Anglo Irish into "good" and "bad" banks, though the weak capital base of any configuration of the former limits the relevance of such a scheme. In addition, Ireland's two main banks, Bank of Ireland and AIB, are now heavily subsidized and have also reported massive losses this year. AIB must raise 7.4 billion euros to meet new capital reserve rule requirements, or face state control.

--NAMA strategy. The prospects for a Swedish-style asset recovery under the National Asset Management Agency is rapidly decreasing. At the outset, it was expected that 80 billion euros of loans would be transferred from banks to NAMA, with a modest haircut of 20%. However, the write-downs are now well over 50%, averaging 38% for Anglo Irish Bank loans, while the Irish Nationwide BS loans were transferred at a 90% write-down. Due diligence has found that the banks misled NAMA about the real value of their loan books as well as the number of debts producing income streams.

--Public finances. The government's commitment to cut Ireland's deficit from 14.3% of GDP in 2009 to 3.0% by 2014 lacks credibility. Already, the state is borrowing 25 billion euros annually to finance public services despite harsh cuts in public sector spending. Rising unemployment and the associated uptake of social benefits are a further strain. Future hardship is likely, as the major domestic mortgage lenders have raised their non-fixed rates three times this year, despite the stability of the ECB rate. On Aug. 26 bond investors pushed 10-year Irish bonds to 344 basis points over German bonds.

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Debt dynamics. The economic crisis in Ireland is about debt--individual, institutional and firm, and state. Peculiar to Ireland is the deep intertwining of the banking sector, state institutions and property developers, which produced convoluted, low-collateral loans, a porous regulatory culture and complacency about continuing property-based asset escalation. In a small state, gargantuan property loans take on similar-size debt.

Raising capital. Irish banks face debt repayments of about 30 billion government-guaranteed euros in September, with an equivalent amount of bank debt liabilities maturing in the rest of the year. Owing to the increased cost of Irish state borrowing, these banks will have to pay more than expected, which means they must raise fresh funds in the markets. Such banks' funding costs are normally based on government bond yields coupled with a premium. (The cost of Irish bank bond credit default swaps on senior debt has also risen.) If the banks have trouble raising capital to refinance, they will have to rely on the ECB, which further weakens sovereign debt spreads. The banks can use NAMA bonds (government-backed bonds which replace the real-estate loans deposited with NAMA, which are ultimately ECB-backed) to raise capital.

Outlook. Despite short-term success in raising capital in bond markets, debt is accumulating. Future Irish governments will have to pay back these bond-based borrowings. Taxpayers now face a generation of repayment. This debt, rather than the deficit, is the real fiscal challenge facing the Irish government and its partners within the euro-area.

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Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar-experts at Oxford and other leading universities and research institutions around the world. For more information, please visit here.

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Banks leave some customers in 'dire poverty'

By Brian Milligan Business reporter, BBC News

High Street banks have been accused of leaving some customers in "dire poverty" after taking money out of their accounts without permission. 
 

 

Setting off typically sees banks move between £100 and £200, usually to pay off a credit card account

Banks can move cash between different accounts belonging to the same person, and only have to tell them afterwards.

The practice, known as "setting off", typically involves banks moving money from a current account to pay off a credit card account which is overdrawn.

Citizens Advice says it has seen an 80% rise in inquiries about such transfers.

It is not illegal for banks to move money in this way. They only have to tell the customer after they have done it.

"Setting off" typically involves banks moving sums of between £100 and £200, usually to pay off a credit card account.

For many people that can actually be helpful, as it will save them interest charges.

Continue reading the main story

“Start Quote

I have no money for food, let alone for other essentials like washing materials”

End Quote John Gates

 

But for others, particularly those who receive benefits, it can cause serious hardship.

£3 a day
 
John Gates, from Brixton in south London, has a £4,000 debt on his credit card.

He relies on housing benefit and Job Seeker's Allowance for his income.

On at least four occasions his bank took money out of his current account to put towards the credit card debt. It only informed him afterwards.

After paying for his rent, John says that left him with just £3 a day to live on.

"It's devastating," he says. "It means I go on a forced diet. I have no money for food, let alone for other essentials like washing materials."

Another couple, from Dundee, told the BBC that they were left without enough money to pay for their baby's nappies after their bank also transferred money to a credit card account without their knowledge.

The couple agreed to be interviewed, until their bank apparently offered them a £1,000 payment if they agreed to remain silent.

Bank consolidation
 
Citizens Advice says such cases are not rare. "It's actually leaving people in dire poverty," Sue Edwards from the service told the BBC.

Up to 2% of all bank customers are affected by set-off payments, and the practice has increased markedly in the last four years.

Continue reading the main story

“Start Quote

The onus is on the banks to make sure they treat individuals sympathetically and positively”

End Quote Eric Leenders British Bankers' Association

 

That is partly because of the consolidation of banks, so that where customers used to have accounts in separate banks, they now find those accounts come under a single new owner.

The Lloyd's Banking Group includes Halifax and Bank of Scotland, for example, while RBS includes Natwest.

Sue Edwards says she would ideally like to see the whole practice banned, but because that would require legislation, it would be difficult to achieve.

In the meantime she is asking banks to leave at least £1,000 in people's accounts, to cover basic living costs.
"It wouldn't help everybody," she says, "but it would help more people than at present."

'Beneficial' practice
 
Banks say they are well aware of the problem.

"It can be a big challenge for people," admits Eric Leenders from the British Bankers' Association (BBA).

But he also points out that the practice can be beneficial to customers who have simply forgotten to make a payment.

Such customers could avoid an unarranged overdraft, or arrears on a loan or mortgage.

And he rejects the idea of leaving a minimum of £1,000 in customers' accounts.

"It would be difficult to say a specific amount," he says.

But after the BBA published extra guidance to the lending code in March this year, Eric Leenders is promising that banks will be more considerate towards customers.

"The onus is on the banks to make sure they treat individuals sympathetically and positively," he says. "Banks should make sure there's sufficient left for reasonable living expenses."

The Financial Services Authority, the banking regulator, is currently consulting on its own new guidance on set-off practice.

Among its planned recommendations, it says money should not be taken from joint accounts or where the cash involved has come from a benefit payment or a tax credit.

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Related Internet links

• Citizens Advice
• British Bankers' Association

Mum disowns son over debt

 Visit from Ah Long the final straw

JOHOR BARU: A tyre shop owner has disowned her son after Ah Long harassed her over his RM60,000 gambling debt.

Bong Swee Yin, 50, said although she could tolerate her son stealing from her to fuel his online gambling habit, the visit by the Ah Long was “unbearable.”

“I can accept and even forgive him for stealing from me over the past eight months. However, leaving me to settle his RM60,000 debt is too much.

“I have decided to disown him,” she told reporters at a press conference organised by Johor Baru MCA public complaints bureau deputy chief Michael Tay here.

Fed up: Bong airing her woes to Tay during a press conference at the Johor Baru MCA public complaints bureau.

 

She said she hoped the Ah Long would stop harassing her since she had severed family ties with her 25-year-old son who would often stay up until the wee hours of the morning gambling online on his computer.

“Whatever the Ah Long want to do to him, I don’t care anymore. I am very disappointed with his behaviour,” she said, adding that her son had been missing since Aug 25.

Bong also vowed that even if her son were to repent and beg for forgiveness, she would not help him pay his debts.

“If he comes home and explains his actions, I am still willing to take him back. I will not, however, help pay his debts. That will be his problem,” she said.

“Before the Ah Long came to my shop last Wednesday, I had no idea that my son’s gambling habit was so serious.

“He has always been rebellious and disobedient but I never imagined him getting into this kind of trouble,” she said, adding that the Ah Long had threatened to seize goods from her shop if her son did not settle the debt soon.

Tay said almost 90% of the Ah Long cases the bureau received this year were linked to debts incurred through online gambling.

“Many people turn to Ah Long when they get into debts. I urge the public to never ask Ah Long for help no matter how deep the trouble they are in,” he said.

Moving to a higher plateau

AT YOUR SERVICE
By DATUK NICHOLAS S. ZEFFERYS

After three years, Pemudah, initially set up to make public delivery service more effective and efficient, now faces the same question it put to others. Has it been effective in effecting mindset change?

PEMUDAH (Government’s Special Task Force to Facilitate Business) has been in existence for over three years now. It is perhaps appropriate to review how and why it came about.


In his book, Business at the Speed of Thought, billionaire Bill Gates wrote that business would change more in the next decade than it had in the past 50 – and it has indeed. The speed of change requires all organisations to conduct an honest stocktaking, asking “How are we doing?” and then doing something about the gaps.


In the private sector, this usually comes in the form of continuous feedback from customers and investors. Failure to listen to feedback in the private sector leads to complacency and, ultimately, insolvency and bankruptcy.


In the public sector, feedback comes in the form of complaints from stakeholders and also the global ranking of countries. Failure to heed either leads to complacency and a slow, gradual decline in service delivery.


Once, when somebody asked him how he had gone bankrupt, a businessman replied. “Gradually, then suddenly.” It is in the nature of people and organisations to gradually fall into a pattern of complacency, particularly when things seem to be going well. Then, suddenly and inexplicably, they are shocked to find themselves hopelessly adrift.


Investment in Malaysia – both foreign and domestic – has been on a declining trend for over a decade. A reality check came from a World Bank report comparing countries on several measures. It showed that it was just too difficult to do business in Malaysia, which was ranked very poorly on nearly all components of the business life cycle processes.


Pemudah was formed on Feb 7, 2007, during Tun Abdullah Ahmad Badawi’s leadership. He wanted a customer-centric government that was world class in the delivery of government services. He had in his mind a new vehicle – drawing on the private sector to provide another lens through which to evaluate and transform government processes and procedures.


The Chief Secretary to the Govern­ment was appointed the Chair to the Taskforce. Abdullah conceived Pemudah as a public-private partnership (PPP) that went well beyond being a dialogue between the two. This was demonstrated by sharing its chairmanship with private sector leader Tan Sri Yong Poh Kon.


Pemudah’s goal was to vault Malaysia to the Top 10 in global competitiveness. The first official meeting was on Feb 23, 2007. The principle shared goal by all members in the public and private sectors was to “McDonaldise” government delivery. It was, among others, to ensure accountability, deadlines on action items, and question the need for burdensome rules designed to catch less than 1% of the abusers.


The Chief Secretary expressed the need for mindset changes and encouraged ministries and agencies to take proactive initiatives, even beyond what Pemudah may recommend or emphasise.


The private sector representatives expressed concern about flip-flops on decisions and the need to shake the bushes with stakeholders before the implementation of policy changes or new policies. Among others, they placed importance on Malaysian Investment Develop­ment Authority’s empowerment as a one-stop shop, enhancing the “rule of law” and a review of unnecessary procedures in order to speed up delivery. The mindset change was to transform processes to achieve transaction completions in days, rather than months.


Government and private sector processes came under the lens of both effectiveness and efficiency – “doing the right things right”. Nothing was sacred – neither entire organisations nor processes within or across ministries and sectors. The focus was not only on improving what was in place, but also defining new measures, processes, or Acts.


Indeed, when Prime Minister Datuk Seri Najib Tun Razak met with Pemudah, he expanded its role to cover not only business but other outcomes which affected the rak­yat.


Ultimately, sustainability of the transformation process requires a mindset change. The Pemudah model takes the public-private relationship beyond dialogues that are simply an often inconsequential airing of issues and gripes. It moves it to a higher plateau of shared responsibility for effecting change in the status quo. The private sector is invited to sit equally at the same table with government officials and the collective “team” is charged with the responsibility to improve Malay­sia’s positioning.


PPP collaboration has yielded not only measurable outcomes but it has perhaps, more importantly, yielded a change of mindsets. The public sector has moved from victims and functionals to energised and empowered leadership under the guidance of Pemudah co-chairs Tan Sri Sidek Hassan and Yong.


Of great pride to all Pemudah members is the recently conferred award to Tan Sri Hasmah Abdullah for her efforts in modernising and creating a customer-centric Inland Revenue Board, the modernisation of the judicial system and the creation of Commercial Courts, new guidelines on registering property and many others that Pemudah either directly or indirectly effected.


Pemudah is a work in progress and this PPP remains committed to continue to improve the government delivery system to serve the rakyat and all stakeholders in Malaysia.

God did not create the universe: Hawking

LONDON – God did not create the universe and the "Big Bang" was an inevitable consequence of the laws of physics, the eminent British theoretical physicist Stephen Hawking argues in a new book.

File photo shows Canada's Prime Minister Stephen Harper applauds beside British physicist Stephen Hawking (R) after making an announcement at the Perimeter Institute for Theoretical Physics in Waterloo July 6, 2010. [Agencies]

In "The Grand Design," co-authored with US physicist Leonard Mlodinow, Hawking says a new series of theories made a creator of the universe redundant, according to the Times newspaper which published extracts on Thursday.

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"Because there is a law such as gravity, the universe can and will create itself from nothing. Spontaneous creation is the reason there is something rather than nothing, why the universe exists, why we exist," Hawking writes.

"It is not necessary to invoke God to light the blue touch paper and set the universe going."

Hawking, 68, who won global recognition with his 1988 book "A Brief History of Time," an account of the origins of the universe, is renowned for his work on black holes, cosmology and quantum gravity.

Since 1974, the scientist has worked on marrying the two cornerstones of modern physics - Albert Einstein's General Theory of Relativity, which concerns gravity and large-scale phenomena, and quantum theory, which covers subatomic particles.

His latest comments suggest he has broken away from previous views he has expressed on religion. Previously, he wrote that the laws of physics meant it was simply not necessary to believe that God had intervened in the Big Bang.

He wrote in A Brief History ... "If we discover a complete theory, it would be the ultimate triumph of human reason - for then we should know the mind of God."

In his latest book, he said the 1992 discovery of a planet orbiting another star other than the Sun helped deconstruct the view of the father of physics Isaac Newton that the universe could not have arisen out of chaos but was created by God.

"That makes the coincidences of our planetary conditions -- the single Sun, the lucky combination of Earth-Sun distance and solar mass, far less remarkable, and far less compelling evidence that the Earth was carefully designed just to please us human beings," he writes.

Hawking, who is only able to speak through a computer-generated voice synthesizer, has a neuro muscular dystrophy that has progressed over the years and left him almost completely paralyzed.

He began suffering the disease in his early 20s but went on to establish himself as one of the world's leading scientific authorities, and has also made guest appearances in "Star Trek" and the cartoons "Futurama" and "The Simpsons."

Last year he announced he was stepping down as Cambridge University's Lucasian Professor of Mathematics, a position once held by Newton and one he had held since 1979.

"The Grand Design" is due to go on sale next week.

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Link Between Everyday Stress and Obesity Strenthened With Study Using an Animal Model

ScienceDaily (Sep. 1, 2010) — Stress can take a daily toll on us that has broad physical and psychological implications. Science has long documented the effect of extreme stress, such as war, injury or traumatic grief on humans. Typically, such situations cause victims to decrease their food intake and body weight. Recent studies, however, tend to suggest that social stress--public speaking, tests, job and relationship pressures--may have the opposite effect--over-eating and weight gain. With the rise of obesity rates, science has increasingly focused on its causes and effects--including stress.

A recent study conducted by the Departments of Psychiatry and Biomedical Engineering at the University of Cincinnati College of Medicine, examined the effects of stress on the meal patterns and food intake of animals exposed to the equivalent of everyday stress on humans. The results suggest that, not only does stress have an impact on us in the short term, it can cause metabolic changes in the longer term that contribute to obesity.

The study was conducted by Susan J. Melhorn, Eric G. Krause, Karen A. Scott, Marie Mooney, Jeffrey D. Johnson, Stephen C. Woods and Randall R. Sakai at the University of Cincinnati College of Medicine, Cincinnati, OH. Their study was published in the American Journal of Physiology - Regulatory, Integrative and Comparative Physiology.

The Study

Previous studies have found that meal patterns (number, duration and size of meals) can affect metabolism. Studies of both humans and animals have shown that taking fewer and larger meals promotes the gain of fat mass and can increase triglycerides, lipids and cholesterol independent of total caloric intake. Conversely, weight gain--even while overeating--can be prevented by consuming smaller, more frequent meals. Whether social stress alters the microstructure of food intake, however, was unclear.

The current study used the visible burrow system (VBS), an animal model of chronic social stress, which has been shown to produce stress-associated behavioral, endocrine, physiological and neurochemical changes in animals. Long-Evans rats (90 days old) were individually housed for three weeks prior to the experiment. During this habituation time, they were briefly anesthetized and implanted with a unique subcutaneous microchip just behind their ears which allowed for identification and monitoring of feeding behavior. Meal pattern characteristics were measured for seven days during habituation. Data were calculated for each animal for each day and then averaged together to provide an overall habituation measure as a baseline for all of the conditions.

For the experiment, rats were formed into colonies, composed of four males and two females, and matched with a control group. Within a few days, all colonies formed a hierarchy which established the dominance of one male and the subordination of the other three males. Each colony had equal hours of light and darkness. Meal pattern characteristics were calculated for each animal on a daily basis. As documented by behavioral video analysis and microchip data, both subordinate and dominant rats reduced their initial food intake and body weight compared to the habituation period and as compared to the control group. After the hierarchy was stable, however, the dominant rats recovered their food intake relative to the control animals, while the subordinate rats continued to eat less by reducing their number of meals. Furthermore, although rats are nocturnal animals, the subordinate rats ate primarily during lighted periods, indicating a shift in circadian behavior.

The Result

After two weeks, the male rats were individually housed for a three-week recovery period and allowed to eat freely. Compared to the control group, both dominant and subordinate rats over- ate during the recovery period, but the dominant animals ate more frequently, while the subordinate animals ate larger meals, but less frequently. The dominant rats gained weight and lean mass, but only as comparable to the control group, while the subordinate rats gained significant fat in the visceral (belly) region. Throughout the recovery period, subordinate rats continued to overeat, eat longer meals and gain fat, suggesting long-term, deleterious metabolic changes.

Interestingly, the study results suggest that the signals controlling ingestive behavior become impaired or are overridden during social stress. Hypothalamic neuropeptide Y (NPY) is a well-known chemical messenger within the hypothalamus that stimulates food intake in times of negative energy balance, possibly by increasing meal size. In this case, NPY did not mediate the consumption patterns of the animals during the VBS period.

Conclusion

This is the first study of its kind to examine meal patterns in real-time during exposure to chronic social stress and during a subsequent recovery period, as well as to begin to evaluate the neuroendocrine and neurochemical underpinnings of the altered ingestive patterns observed. Stress and recovery induced changes in animals' body weight and composition and the alterations in meal patterns observed may have contributed to these physiological changes.

Stress is experienced by animals and humans on a daily basis and many individuals experience cycles of stress and recovery throughout the day. If, following stress, we consume larger and less frequent meals, the conditions are favorable for weight gain--especially in the abdomen. We know that belly fat, as well as stress, contributes to the development of cardiovascular disease, immune dysfunction and other metabolic disorders. Further studies using the VBS model will help us understand the relationship between stress and obesity and help us treat and prevent the development of these diseases.

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Brain Exercises Can Delay Mental Decline, But Then Watch Out

By Jeanna Bryner, LiveScience Managing Editor

Brain exercises may keep cognitive decline at bay longer, but once dementia hits it mysteriously seems to progress faster than if it hadn't been postponed, according to an ongoing study that began in 1993. 

"Our results suggest that the benefit of delaying the initial signs of cognitive decline may come at the cost of more rapid dementia progression later on, but the question is: Why does this happen?" said study researcher Robert S. Wilson, of the Rush University Medical Center in Chicago. 

Mentally stimulating activities, such as crossword puzzles and reading, seem to keep the brain functioning relatively normally for a while despite the buildup of the plaques and tangles in the brain that are linked with dementia. However, there seems to be a threshold, after which a person's brainy lifestyle can't hold off the outward signs of dementia, the researchers say. 

How often do you read?

 

For their study, Wilson and his colleagues enlisted 1,157 people, all at least 65 years old and with no signs of dementia, and then evaluated their mental activities over the years. 

At the study's start, participants indicated on a 5-point scale how often they participated in seven  activities: viewing television, listening to radio; reading newspapers; reading magazines; reading books; playing games like cards or doing puzzles; and going to museums. (A rating of 5 meant a person did some of these activities about every day; 3 meant several times a month; 1 meant once a year or less.) 

About every three years, clinical evaluations were used to determine signs of dementia, mild cognitive impairment and Alzheimer's disease. (Dementia is a decline in mental capabilities, especially memory, which is primarily caused by Alzheimer's disease but also can be the result of Parkinson's disease, stroke, or infections in the brain.) 

During the first six years of the study, the researchers determined the number of individuals who had developed mild cognitive impairment, Alzheimer's, or no cognitive impairment. Then, they followed them for another six years and found that the rate of inevitable decline in those people still without cognitive impairment was reduced by 52 percent each subsequent year for each point they scored on the cognitive activity scale. 

But, perhaps surprisingly, for people who had developed Alzheimer's disease at the first six-year point (which accounted for about 90 percent of the dementia diagnoses), the average rate of decline per year actually increased by 42 percent for each point they scored on the cognitive activity scale. 

"Actually, the person with a cognitively active lifestyle has more severe disease than it appears when dementia is first diagnosed, and they decline more rapidly thereafter," Wilson said. 

 

Why reading delays brain decline

 

"There's been a long debate as to why people with a cognitively active lifestyle are less likely to experience cognitive decline," Wilson told LiveScience. One idea is that keeping the brain active protects against the decline, while another school of thought proposes that people who are less cognitively active are really showing early signs of the disease (and so decreasing cognitive activity is just a consequence of cognitive decline). In fact, past research has suggested people who have healthier brains are more likely to read and practice other mind-enhancing activities. 

The longitudinal study — meaning one in which participants are followed over time — is part of the Chicago Health and Aging Project, focusing on risk factors for Alzheimer's disease in four Chicago neighborhoods. 

The latest findings suggest the protective effect may be at work. Essentially, the plaques and tangles are still forming on the brain, but people who stay cognitively active don't show signs of those brain plaques until later.

The researchers aren't sure what's going on in the brain to keep decline at bay for cognitively active people. But past brain-imaging studies offer clues. 

One study over a three-year period of German medical students cramming for a sort of final exams found that their brains' hippocampus and neocortex had grown, Wilson said. Another study, focusing on jugglers, revealed corresponding changes in the parts of the brain devoted to juggling. 

The size increase in various brain regions means that some people will have an extra buffer for the cognitive decline that inevitably comes with age. Or as Wilson puts it, the beefed-up brain regions give you "a little more mileage out of what you have." 

Keeping your mind sharp

 

It's not too late for those who are creeping into old age to ward off the onset of mental deterioration, Wilson said. [Play brain-training games.] 

Wilson wouldn't recommend just mindless crossword puzzling; clues from neuro-imaging studies suggest the activities that make a difference in brain-boosting are the ones practiced regularly and intensively. 

"They need to be challenging activities and also intriguing or fun to the individual," Wilson said. He added:  "Any activity that involves reading is a good place to start." 

The study, supported by the National Institute on Aging and the National Institute of Environmental Health Sciences, was published online Sept. 1 in the journal Neurology.

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Bank Loan Price War, Banks to try to prevent speculation on property prices, Possible mortgage cap on property not a concern

There may be a price war to give out cheaper bank loans

By TEE LIN SAY
linsay@thestar.com.my

KUALA LUMPUR: There may be a new round of price war among banks for consumer loans, with the new mortgage rate going down to as low as base lending rate (BLR) -2.3%. The current BLR rate is 6.3%.
Some analysts said this comes as a surprise to the market after a mutual understanding was reached earlier to set a minimum rate of BLR-1.9%.

The new mortgage rate is now down to BLR-2.2% since end-July and some banks have started offering BLR-2.3%.

A home loan officer from CIMB Bank Bhd told StarBiz that housing loans have been revised downwards.

Which one shall I take? So many choices! Can't believe it.

 

“Previously we were offering BLR-1.9%. Now, we are revising the rate to BLR-2.1%. We had been losing some market share to foreign banks and decided to join in the price war,” he said.

The BLR is a minimum interest rate calculated by banking institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs. The BLR is measured against the overnight policy rate (OPR). This year, Bank Negara has raised the OPR by 75 basis points in three rounds of rate hikes points to 2.75%.

This means that the BLR also goes up by 75 basis points to 6.3% currently. The BLR is one of the major components used by banks to determine the pricing of home loans.

StarBiz called up the customer service departments of some of the major banks for verification. While rates change depending on the mortgage taken, some banks have become very aggressive in their rates.

It appears that CIMB’s rate is now BLR-2.1%, Hong Leong Bank Bhd is BLR-2.3%, OCBC Bank (M) Bhd is BLR-2.3% and UOB Bank is BLR-2.3%.

While the website of Malayan Banking Bhd shows that it is offering BLR-1.8%, one of its home loans officers contacted said it could offer up to BLR-2.2% depending on the loan taken.

“The price war has also spilled over to credit cards, with offers to absorb the government annual service tax. This was previously borne by card holders,” said an analyst from UOB KayHian.

The analyst added that the start of government infrastructure projects and robust property launches would drive business loan demand in the second half, in time to mitigate the impact from slower external trade.
Business loan is now 44.7% of total loans as at end of July 2010.

Property brokers agree that the outlook for the property sector has been improving.
Zerin Properties CEO Previndran Singh has a “neutral to positive” outlook on the property sector in Malaysia.

“Prices are not moving up as fast, but interest is returning. Yes, there are issues of products being mismatched, but they are not big issues,” he said.

A real estate agent from Reapfield Properties Sdn Bhd said interest in Malaysian property was moderate. People were adopting the “wait and see” attitude because of the rising interest-rate environment.

However, she said there was “lots of interest in our properties below RM2mil”. There was less movement among the higher end homes.

She added that her client list included foreigners from Singapore who were keen to invest in Malaysia due to its affordability.

The UOB analyst said banks’ net interest margin was expected to trend up again after Bank Negara made another 25 basis points hike to the overnight policy rate on July 8. Average lending rate inched up to 5.19% in July from 5.05% in June.

This impact might be offset by the new round of price war among banks for consumer loans.

Loan growth fell from 12.5% in June to 11.9% in July due to higher repayment by the real estate and finance sectors. Consumer loans remained the driver on resilient demand for big-ticket items.

The banking system’s capitalisation remained strong with risk-weighted capital ratio and core capital ratio sustained at 15.1% and 13.2% respectively.

The level of non-performing loans including impaired loans remained stable, accounting for 2.1% of net loans. Loan loss coverage was stable at above 90%.

Banks to try and prevent speculation on property prices

By ANGIE NG and SHARIDAN M. ALI
starbiz@thestar.com.my

PETALING JAYA: Bank Negara is engaging with banks on possible measures to curb excessive speculation on property prices while developers caution that it should not be imposed across the board to avoid dampening the property market.

Responding to queries on whether the central bank will be imposing a 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble, the central bank said: “Bank Negara regularly engages with industry players as part of its surveillance and supervisory activity. The engagements cover a broad range of issues and areas that relate to developments on the ground, safety and soundness of the institutions and the overall system.”

Datuk Michael Yam ... 

‘Bank Negara should not impose a mandatory LVR cap on loans.’

 

It added that to ensure prudent management of credit risk in the banks’ balance sheets, the central bank regularly engages with the industry on developments in the underwriting and selling practices of financial institutions.

The share of housing loans to total loans is about 26%, according to the central bank.

When contacted, banking industry players said it was likely that any measures to be introduced would be pre-emptive measures to target certain quarters of purchasers and would not be across the board.

The measures are believed to be targeted at the high-end and non-owner occupied house purchasers.
Currently Bank Negara does not impose any standard policy on mortgage loans but leave it to the banks to manage.

But following a rise of between 10% and 30% in the prices of landed houses in some parts of the Klang Valley (including Kuala Lumpur) and Penang in the past one year, banking sources said Bank Negara might be looking at discontinuing the 5:95 and 10:90 housing loan packages, and preferred banks to impose higher downpayment for property purchasers.

Tan Sri Leong Hoy Kum ... ‘We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.'

The bank sources concurred that over the longer term, there must be the flexibility to allow more relaxed loan quantum if the market needs it, especially if there is a recession.

OCBC Bank (Malaysia) Bhd head of secured lending Thoo Mee Ling said part of the rationale for the 80% LVR for mortgages could be to curb speculative property prices in the market currently.

“If it is implemented, home buyers will have to self-finance a higher amount than they do now. In the short term, coupled with entry costs such as legal, stamp and valuation fees, the property market will take a dive and it will subsequently dampen the mortgage business.

“In the long term, the measure would curb speculative property buying and promote a healthier property market. Therefore, both the banks and property market will become more resilient to any potential crisis,” she said.

Datuk Michael Yam, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda), said Bank Negara should not impose a mandatory LVR cap on mortgage loans at this juncture as it would dampen buying sentiment with spillover effects on other related industries such as construction and building materials suppliers.

“The local banking industry is well regulated and banks are very prudent and stringent in their credit assessment of borrowers. Banks have, on their own initiative, cut down loan margins to borrowers and only those who are credible and can afford to repay their loans will be offered a higher loan margin.
“Banks also are very selective of what projects they extend loans to.”

Caution and prudence should be exercised when considering any measure for mortgage loans, said Yam, adding that it should not be across the board.

“It is better to leave it to market forces to decide as the banks’ stringent lending criteria is enough to ensure the quality of loans in the market,” he added.

Yam said that up to 90% of the country’s population are living in affordable houses priced below RM250,000, and the current low downpayment for property purchases has promoted home ownership among the lower to middle income group.

Mah Sing Group Bhd group managing director cum chief executive Tan Sri Leong Hoy Kum said a conducive financing environment was important to support the property industry, which was a significant engine of growth for the economy.

“We hope that any implementation of the 80% loan to value ratio will take into proper consideration the industry’s feedback and current market conditions.”

Leong said there was no property bubble at this juncture “as property price increases have not been across the board.”

“The properties which have been enjoying price appreciation are those with good concepts by branded developers, and sited in good locations.

“One must also take into account the construction cost, and also increasing price of good land in considering the prices of properties, which have gone up by 10% to 25% in the past 1½ years,” Leong added.

Possible mortgage cap on property not a concern

By TEE LIN SAY
linsay@thestar.com.my

Buoyant consumer sentiment, demand for good locations seen supporting property purchases, say analysts

KUALA LUMPUR: Preemptive measures to curb purchases in certain property segments may yield temporary results as buoyant consumer sentiment and demand for good locations are expected to sustain.

Property analysts said there could be a short-term knee-jerk reaction to Bank Negara’s possible imposition of an 80% loan-to-value ratio (LVR) for mortgages to avert the risk of a potential property bubble.

CIMB research head Terence Wong is not overly concerned over such moves, pointing out that the previous imposition of a 5% real property gains tax last October had only resulted in a short-term cooling of demand.

“This will be effective in cooling down the market for a few months. People will step back and pay more attention to the launches and product offerings instead of simply jumping onto the bandwagon,” he said.

Wong, however, feels that the measure should not be imposed across the board. It should be applied to landed homes rather than condominiums, as it is mainly the prices of landed properties that have gone up extremely fast.

On the other hand, price increases for high-rise condominiums and apartments have been relatively subdued due to an oversupply situation.

“We know there is a finite supply of land in the Klang Valley. Everybody wants his own plot of garden. So logically, that is why prices of landed properties are going up. In that sense, this potential move (to curb certain property loans) is not a serious concern,” said Wong.

Analysts are not surprised by the possibility of a cap on the LVR as the prices of selected properties in prime locations in the Klang Valley have shot up in recent months due to a combination of factors including pent-up demand and speculation.

Bank Negara is currently exploring this measure to reduce excessive speculation and prevent the housing market from overheating as the economy recovers amidst a low interest rate environment.

Developers have enjoyed record sales this year and in some instances, sales have been so strong that some developers have the luxury of slowing down their launches.

NewAsia Capital associate director Sherilyn Foong agreed that the possible measures would, to an extent, cool down speculation in the property sector.

In Foong’s view, these potential measures could affect the take-up rates, especially among the higher value primary transactions which have benefited from innovative financing schemes.

“Pending more details, if the cap is only imposed on higher value transactions of say, RM1mil and above, the lower-middle range should, technically, not be affected.

“This is unless the entire sector turns bearish against the sentiment induced by sector-specific measures such as impositions of capital gains tax,” she said.

Credit Suisse research head Tan Ting Min, in her report on Tuesday, said capping the LVR at 80% would put a dent on the Malaysia property sector and dampen sentiment in the near term.

“The cap on LVR will indirectly reduce affordability and may cool demand in the mass market and mid- to high-end segments.

“We may also see some downtrading as affordability will be determined by the higher 20% equity upfront requirement.”

In the longer term, Tan views the preemptive role taken by Bank Negara as positive.

“It is critical in ensuring the sustainability of the Malaysia property market and reducing the risk of a major ‘shock’ to the sector should the economy slow or interest rates rise,” she said.

In the region, similar moves have been made to cool the property market over the past 12 months.

Singapore announced another round of cooling measures on Monday, including lowering the LVR to 70% for buyers with one or more outstanding loans, from 80% previously.