By Khairie Hisyam
Malaysian businesses looked closer to home for financing in 2014 as collective external debt in the business sector nearly stopped growing last year, said Bank Negara Malaysia, improving resilience for businesses.
In its Financial Stability and Payment Systems Report 2014 released today, the central bank said the near-halt of external borrowings growth for businesses, which includes government-linked companies but not financial institutions and the government, contrasted with increased growth on domestic borrowings.
Last year saw external borrowings – encompassing outstanding loans, debt securities and sukuk — for non-financial businesses in Malaysia grow by a “negligible” 0.05% year-on-year compared to 22.6% in 2013, said the central bank.
On the other hand the growth rate of domestic borrowings picked up pace last year at 8.5% year-on-year compared to 7.8% in 2013. This saw domestic borrowings enlarge its share of total borrowings to 82% as opposed to 80.8% in 2013.
“Growth in external borrowings was negligible in 2014, most of which are to finance global operations and supported by FCY (foreign currency) receivables,” said Bank Negara. “Business resilience also improved on account of the negligible growth of external outstanding external borrowings which amounted to RM186.2 billion.”
Bank Negara in its report attributed this in part to maturing bonds by businesses in the transportation and oil and gas sectors as external borrowings.
Overall outstanding domestic and external borrowings grew by 6.8% year-on-year in 2014, a slower pace than seen in 2013 at 10.4% year-on-year.
In terms of absolute figure, as of end-2014 total business sector debt stood at RM1,037 billion, said Bank Negara.
That total debt figure comes to 96.9% as a share of national gross domestic product (GDP) in 2014, a decline from 98.4% in 2013 – the first dip in four years.
Steady amid headwinds
Businesses remain comfortable despite increasingly strong headwinds in 2014, said Bank Negara, backed by generally healthy corporate balance sheets.
In its report, the central bank said that 2014 saw significant movements in exchange rates and commodity prices but businesses had been able to adjust without much difficulty with leverage levels remaining prudent.
“The overall leverage of the Malaysian business sector, although marginally higher, remains comfortably within prudent levels,” said Bank Negara, adding that this is surveyed across 160 Bursa Malaysia-listed companies covering major economic sectors and some 80% of total market capitalisation.
In addition businesses did not appear to take more risks last year, said the central bank.
“Businesses generally (preferred) to conserve internal funds for their operational needs and external factors, including global interest and exchagne rates,” said Bank Negara, adding that this preference had “little effect on business risk-taking.
In terms of borrowings, the bulk of the increase seen last year were related to earlier planned fund-raising and for working capital needs, said the central bank.
Still profitable
Businesses also remained profitable in general last year, said Bank Negara, although the median operating margin contracted slightly.
In the first nine months of 2014, the median operating margin for non-financial Malaysian businesses was clocked in at 12% compared to 12.9% in 2013, according to Bank Negara’s report released today.
On the other hand return on assets seen in the same period in 2014 rose slightly to 4.9% against 4.8% seen in 2013, added the central bank.
“The sharp fall in oil prices in the final quarter of (2014) may alter overall results for businesses in the oil and gas sector,” said Bank Negara. “The weak ringgit may impact results of some domestic businesses with high import content.”
However any impact on the oil and gas sector is comfortably buffered median interest coverage ratio (ICR) of 4.3 times, which Bank Negara opined is “reasonably high”.
ICR represents a measurement of how easily a company can pay interest on outstanding debt and is calculated by dividing a company’s earnings before interest and taxes in a given period by its interest expenses in that same period.
Across all business sectors, the media ICR remained healthy at 6.4 times in the first nine months of 2014, said Bank Negara, despite a contraction against ICR of 7.7 times seen in 2013.
“This was reinforced by the sound overall liquidity position of businesses, with the median current ratio and ratio of cash to short-term debt at 1.9 times (2013: 1.8 times) and 1.3 times (2013: 1.4 times) respectively,” said Bank Negara.
In addition the ratio of bank loan repayments-to-disbursements rose in 2014 to 95.9% compared to 94.2% in 2013, added the central bank.
“Overall, businesses in Malaysia compare favourably to those in other regional economics in terms of the distribution of debt owed by businesses that have healthy indicators of leverage and debt servicing capacity,” said Bank Negara.
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