By Jose Barrock
A major problem is brewing in the financial services sector— specifically through the lending of development financial institutions (DFIs), non-banking financial institutions (NBFIs) and credit cooperatives. This is in the form of a near two thirds increase in personal financing last year by these non-bank institutions to RM43 billion last year.
Judging by Bank Negara Malaysia’s Financial Stability and Systems Report 2012, there are clearly issues which are getting out of hand, if unchecked.
“It’s all in the Financial Stability Report 2012. It is quite shocking…read it, it’s a good thing that after the Financial Services Act (2013) comes into force all these will come under the purview of Bank Negara…things have gotten out of hand,” an official from one of the larger banks told KiniBiz.
He added that while Bank Kerjasama Rakyat (Bank Rakyat) had already received a memo or note from the Central Bank, the rest were also in the crosshairs, and unlikely to get off the hook easily, once the Financial Services Act 2013 kicks in.
Other than Bank Rakyat, some of the DFIs operating locally include Bank Simpanan Nasional Bhd, Bank Pembangunan Malaysia Bhd and Export Import Bank of Malaysia Bhd to name a few.
NBFIs include Malaysia Building Society Bhd (MBSB), which is controlled by the Employees Provident Fund, RCE Capital Bhd controlled by businessman Azman Hashim of Arab Malaysian group or now Am fame, and other non-banking credit providers such as Courts Mammoth Bhd, and Aeon Credit Services (M) Bhd among others.
The credit cooperatives meanwhile have an umbrella body, the National Cooperative Organisation of Malaysia or Angkatan Koperasi Kebangsaan Malaysia (Angkasa). Angkasa is the sole body which has an interface with the Attorney General’s office that facilitates salary deductions for government employees.
MBSB especially, the banking official said, is currently being closely watched by Bank Negara. MBSB is defined as a Scheduled Institution under the Banking and Financial Institution Act 1989 (BAFIA), as an Exempt Finance Company allowing it to undertake financing activities in the absence of a banking license.
Bank Negara it seems is trying to end this special provision of MBSB. We will focus on MBSB tomorrow.
Financial Stability and Systems Report 2012
Some of the revelations by Bank Negara are quite shocking.
According to Bank Negara, NBFIs and DFIs made up only 12% of total credit to the household sector but collectively, provided 57% of personal financing credit to households. It seems such credit has been increasing significantly in the recent years.
Bank Negara said, “In 2012, overall credit on all facilities extended by the three largest NBFIs (encompassing a DFI, a large cooperative, and a building society) expanded at a faster rate of 23.1% (2011: +17.1%). The strong credit expansion was primarily driven by the increase in personal financing activity which rose at its fastest pace to date by 30% (2011: +25.1%; 2010: +28.7%),” the Central Bank said.
The numbers are staggering.
For the NBFIs, more than 80% of the lending portfolio was made up of personal financing, in contrast to the banking system where it’s some 5%. During the year, NBFIs approved more than 600,000 new personal financing facilities worth RM43 billion, an increase of 63.7%.
In contrast personal financing facilities approved by banks in 2012 declined by 6.2% to RM19.4 billion.
Personal financing as a proportion of total household debt strengthened to 17% last year, from 16% in 2011 and 14.8% in 2010.
It is also noteworthy that about 80% of the personal financing by NBFIs are given to government servants, with automatic salary deduction schemes administered by the National Cooperative Organisation of Malaysia or Angkasa. Angkasa is the sole authorised body which has an interface with the Attorney General’s office facilitating such salary deductions.
The majority of the borrowers of NBFIs earn a monthly income of less than RM3,000. Angkasa’s scheme also allows for deductions of as much as 60% of a borrower’s total income, net of statutory and other direct deductions from salary.
Longer tenures, larger borrowings
In 2012, the average financing amount for personal financing facilities extended by NBFIs was RM68,000, up by 26% from 2011, and 30.2% higher than the average personal financing facility provided by banks.
The proportion of new personal financing facilities by NBFIs which were for amounts that exceeded RM100,000 also increased significantly to 26% of total new facilities approved from a mere 15% in 2011.
In order to comply with the salary deduction threshold of 60%, the packages allow for extended repayment tenures, and even bullet repayment of principal and interest upon reaching retirement age.
Bank Negara also highlighted that the number of borrowers with more than two outstanding personal financing accounts from NBFIs increased by 27% since 2008, and the proportion of younger borrowers in the age group of 20 to 29 years increased and account for 29.2% of total outstanding personal financing by NBFIs over the same period.
Political influence
Certain quarters add that some of the appointments into the DFIs, NBFIs and the cooperatives are political and therefore add to the problem.
Possibly the most famous chairman of Bank Simpanan is none other than Abdul Azim Mohd Zabidi, the former Umno Treasurer who was involved in the Port Klang Free Trade Zone fiasco.
The current chairman of Bank Simpanan is former civil servant Abu Bakar Abdullah who left the Public Services Department after the Public Service Remuneration Scheme which he tried to implement, was thwarted by the government servants.
Ungku Aziz
Sabbaruddin Chik, former Minister of Culture and Tourism is the chairman of Bank Rakyat.
Several of the cooperatives such as Koperasi Belia Nasional Bhd (Kobena) are also politically connected. Kobena’s executive chairman Ibrahim Mat Din is a politician, having stood for the Tawang state seat in Kelantan, for Barisan Nasional in 2008.
“There is a lot of mismanagement at the co-operative movements here. There is no real governance…There is a need for a second schedule under the Bank Negara Act, to govern the co-operatives and the DFIs and NBFIs,” one source said.
It is also interesting that Bank Negara governor Zeti Akhtar Aziz’s father was involved in the cooperative movement. Ungku Abdul Aziz had resigned as president of Angkasa in 2009, after helming the co-operative for 37 years.
Strangely Ungku Aziz was removed as president following a vote of no-confidence against him by Angkasa board members, after investigations initiated by him against two senior board members for alleged impropriety.
In late 2008, Ungku Aziz had complained about mismanagement and made police reports even, but no action was taken.
“It would look like she was out for revenge if she came down too hard on Angkasa,” a banking source said.
Tomorrow: Malaysia Building Society Bhd, RHB Capital and EPF
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