Tuesday, August 13, 2013

MBSB - feel the heat from BNM's tightening measures


There are concerns that the company may not be able to sustain its impressive earnings growth.

The company, in which the EPF holds a 69.87% stake, will face an uphill battle when the effects of BNM’s personal loan policies kick in the next quarter. The new rules, which take effect immediately could potentially curb loan growth and compress net interest margins.

More than 60% of MBSB’s total loan portfolio is made up of personal financing loans. It will definitely feel the heat from BNM’s tightening policies.

Market observers opine that lackluster profits for the NBFI anticipation slower growth in the personal finance segment due to the newly implemented measures.

MBSB’s loan growth had in the past relied on the robust refinancing activity in civil servant personal loans.

The group was partly driven by the flexible in financing whereby 100% of MBSB’s Islamic personal financing book had long tenures of between 10 and 25 years.

MBSB has about rm20 billion of outstanding personal loans constituting 69% of its total loan portfolio as at March 2013. The group has offered personal financing with tenures of up to 25 years. Thus the 10 year cap on personal financing could have an adverse effect on the group’s earnings prospects going forward.

Some do not think the lenders will be significantly impacted by BNM’s new regulations because of the automatic salary deductions scheme for civil servant personal loans. As one of the four approved credit providers to this segment, the loan default risk for MBSB is low.

Back in 2011, personal financing overtook mortgages as the main contributions to its gross loan portfolio.

Meantime, it appears that MBSB is aware of the looming risk given that it is in the midst of rolling out several new strategies such as venturing into the non civil servant market. It is offering floating rate loans for the mortgage and PF-I segments and stepping up efforts to secure more mandates in corporate financing.

Still a slowdown in loan growth is evitable and opines that MBSB’s gradual short to other segments may not be enough to negate the impact of a decline in personal finance growth going forward.

The private sector personal finance market is much larger than that of civil servants and could prove tough for MBSB to break into. Besides that MBSB will be dealing with a very different market segment where defaults and jobless rates as well as lending habits vary from the more conservative civil servant market.

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