leading to a rise in credit
costs, and dampen
investor sentiment on
the banking sector,”
he added. The circular
prohibits financial
institutions from granting
end-financing facilities
to individuals or nonindividuals for the
purchase of property
offered under an ICS,
including the DIBS.
Financial institutions
are also barred from
granting a bridging facility
to finance a property
development that offers
ICS.
According to Alliance
Research’s Cheah, this
effectively removes any
alternative incentives that
developers might concoct
to replace the DIBS.
“Nonetheless, our
channel checks show that
for the banking groups
under our coverage,
property loans with
the DIBS only made
up 1% to 3% of their
outstanding mortgages,”
he said. Affin Bank is the
exception, with some 7%
of its mortgage loanbook
comprising loans tied to
the DIBS.
“Given that property
loans with the DIBS
are immaterial to
overall outstanding
mortgage loans as well
as new mortgage loans
approved, we do not
expect the restrictions to
have a significant impact
on the banking sector,”
Cheah said.
Public Bank has the
highest exposure to
housing loans at 56% of
its gross loans, followed
by Alliance Bank with
55% and Hong Leong
Bank, 46%, company data
showed. Another key item
on the circular requires
banks to calculate the
LTV ratio based on the
net price of a property
instead of its gross price.
To illustrate, a property
with a list price of RM1
million, rebate of 5% and
90% financing would
incur a down payment of
RM50,000 after discount.
Under the new regime,
the down payment
increases to RM95,000
because the 90% loan
will be computed using
the discounted price
tag of RM950,000. While
property executives
expect a slowdown in
sales, they believe that
genuine buyers will
remain undeterred.
Mah Sing Group Bhd
group managing director
and CEO Tan Sri Leong
Hoy Kum told StarBiz
via email that demand
for properties would
continue to be robust,
especially among those
buying to own or for longterm rental income.
“There is still a large
supply-demand gap
as supply growth for
properties has been on
a decreasing trend since
2003, with Malaysia’s
supply growth in the
second quarter of this
year at only 0.8%.
“The fundamentals driving
the property market’s
growth in recent years
have not changed, for
example a younger
population leading to new
household formation,
a rising middle-income
group, the supplydemand gap and stable
employment.
“Initiatives in Budget
2014 may remove the
speculative element, but
not the fundamentals,”
he said.
Leong noted that the
lending environment was
still conducive, with low
interest rates and banks
offering BLR minus 2.4%,
from BLR minus 2.1%2.2% a year ago.
Mah Sing had stopped
offering the DIBS for most
of its launches since the
start of the year. None of
its projects in Iskandar
Malaysia feature the DIBS.
More Meaures to Curb Speculation Puts
Pressure on Property
price has already been
practised by some banks,
but what the latest ruling
by the central bank does
is now make it a standard
procedure for all banks.
“BNM effectively wants to
deter the practice of giving
100% housing loans,” he
said.
New Bank Negara ruling likely to impact housing loan
growth
A new Bank Negara
Malaysia (BNM) ruling that
requires banks to give out
property loans based on
net selling price, which
excludes rebates and
discounts, rather than
gross selling price may
affect loans growth for
banks this year, Alliance
Research Sdn Bhd said.
Its analyst Cheah King
Yoong said a BNM circular
sent out to banks last
Friday announced not
only the expected ban on
the developers interest
bearing scheme (DIBS) and
the interest capitalisation
scheme (ICS), but also an
unexpected rule for all
banks to determine their
loan-to-value (LTV) ratio
based on net selling price
rather than gross selling
price.
Banks can no longer
provide financing for
projects approved by
authorities with DIBS on
or after Nov 15, 2013
effective immediately.
While those projects
approved before Nov 15
have until Jan 1, 2014
before the prohibition is
effected.
“We currently project 2014
loan growth target of 9%,
supported by stronger
growth of business loans
stemming from the
ongoing implementation
of Entry Point Projects
under the government’s
Economic Transformation
Plan, which is expected
to fill up the vacuum
left by the moderation
in household loans.
However, in light of the
more onerous property
lending curb, we will be
reviewing this target,”
Cheah said in a note to
clients. The research firm
will review its “overweight”
recommendation on the
banking sector post third
quarter 2013 reporting
season, after it gets further
clarity from management
of banking groups under
its coverage with regards
to the impact of such
policies on the banks’
growth prospects.
“We believe that the latest
policies implemented by
BNM illustrate the sheer
determination of the
authorities to contain the
growth of household debt.
These measures, together
with potential rate hikes
by the central bank, fiscal
tightening by the federal
government and subsidy
rationalisation programme
next year, could further
drag loan growth
momentum in the retail
segments, temporarily
lead to rising credit cost,
and dampen investor
sentiments on the banking
sector,” Cheah said.
The circular represents
the third attempt by the
authorities to contain
the growth in household
debt since the second half
of this year. Household
debt to gross domestic
product currently stands
at 83%, one of the highest
in the region. A housing
loan agent who declined
to be named told SunBiz
yesterday that determining
LTV based on net selling
In the past, banks rely on
the sale and purchase
value (SPA) in calculating
the LTV. Post Budget 2014
however, develo