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MARC affirms AAA rating on CGC

KUALA LUMPUR: The Malaysian Rating Corp Bhd (MARC) has affirmed its AAA financial institution (FI) rating on Credit Guarantee Corp Malaysia Bhd (CGC) with a stable outlook.

The rating reflects CGC’s public policy role as a development financial institution (DFI) for which the government through Bank Negara Malaysia (BNM) has continued to provide support. In its role, CGC provides credit guarantees on loans and financing extended to SMEs by FIs. BNM has a 78.7% interest in CGC, with the rest held by commercial banks.

“These factors are the basis for the rating agency to incorporate a high systemic support uplift from CGC’s standalone credit profile. The rating is also underpinned by CGC’s sound capitalisation, stable liquidity profile and conservative investment policy,” MARC said in a statement.

As at end-June 2018, CGC’s net loans guaranteed rose 7.5% to RM8.0 billion from end-2017, with the growth mainly coming from portfolio guarantee (PG) schemes, which accounted for about 80.1% of the total new guarantee amount during the period.

The strong growth of net loans guaranteed since 2016 following a clean-up exercise in that year has also been aided by an improved accessibility to financing through a simplified and structured approval process with participating financial institutions (PFIs). The approval process incorporates an integrated core credit evaluation process to improve turnaround time. MARC expects CGC’s growth momentum to continue over the near term, supported by PFIs transferring part of the risk on SME loans to the DFI.

Gross non-performing loans ratio has continued to improve, standing at 9.4% as at end-June 2018, lower than comparable peers within the DFI space. This stood well below past levels of above 30%, benefiting from the aforementioned clean-up exercise which entailed write-offs and winding down of old guarantee schemes.

Nonetheless, as a DFI mandated to support the development of SMEs, CGC will continue to be exposed to the higher risk associated with SME financing. Mitigating this risk is CGC’s strong capitalisation with a capital adequacy ratio of 32.5% as at end-June 2018 on a comparable Basel II basis. Its guarantee cover value-to-shareholders’ funds ratio stood at a healthy 2.5 times as at end-June 2018, well below the maximum permitted level of 6.0 times.

Operating income rose sharply by 24.4% year-on-year (y-o-y) to RM253.6 million in 1H2018 on the back of higher investment income as well as higher guarantee fees in line with the increase in guaranteed loan base. MARC also notes that the sharp growth of PG schemes has increased the proportion of guarantee fee income to total income, standing at 29.6% as at end-June 2018. Net profit grew by 35.2% y-o-y to RM114.4 million, leading to an improvement in annualised return on assets and return on equity to 4.8% and 7.1% for 1H2018.

CGC continues to maintain a stable liquidity profile, supported by strong cash balances and term deposits, which collectively accounted for 23.2% of its total assets as at end-June 2018.

“MARC notes that while CGC has increased investment funds allocated to fixed income securities in the A-rated and unrated band for yield enhancement, the DFI adheres to a conservative investment policy. Of its significant holdings in fixed income securities, about 88.2% of its debt securities were rated AA and above,” it said.


TH plans to put a cap on depositor’s fund level

KUALA LUMPUR: Lembaga Tabung Haji (TH) is looking to put a cap on each depositor’s fund in the future as one of the measures to reduce government’s liability and exposure towards the depositors. Group managing director and chief executive officer Datuk Seri Zukri Samat said the move to limit the individual deposits at a suitable […]


New OCBC FinTech unit catalyst to bank’s progress in the digital field

KUALA LUMPUR: The Open Vault, OCBC Bank (Malaysia) Bhd’s (OCBC) new FinTech and Innovation unit, is expected to drive OCBC Bank’s progression into the digital era. Unveiled by Malaysia Digital Economy Corporation (MDEC) vice president of Growth Ecosystem Development Norhizam Kadir, he said: “We are pleased to see OCBC Bank committing itself to an initiative […]


Heaviest selling of Malaysian bonds by foreign funds in five months

PETALING JAYA: Foreign investors returned as net sellers of Malaysia’s debt securities in November with total foreign holdings declining by RM5.2 billion, after a short-lived increase of RM7.8 billion in the previous month, according to Kenanga Research.

It marked a fall of 2.7% month on month, the quickest pace since June 2018.

Consequently, the share of total foreign holdings of Malaysia’s debt inched lower to 13.5% from 14% in October.

The bulk of November’s decline was accounted by a net decline of Malaysian Government Securities (MGS) by RM5.4 billion (Oct: +RM4.7 billion), pulling down foreign holdings share of total MGS to 38.8% (Oct: 40.7%), as well as by a net decline of private debt securities (PDS) by RM300 million (Oct: +RM1.4 billion), slightly tilting the foreign holdings share of total PDS down to 2.1% (Oct: 2.2%).

Year to date, total net foreign bond holdings fell by RM19.6 billion.

Kenanga Research expects the outflow of portfolio funds to persist going into next year as there is a total of US$11.1 billion debt maturity in Q4’18 compared with US$6.4 billion in Q3’18, and as risk-averse sentiments remain in relation to trade war uncertainties, despite the announcement of 90-day new-tariff ceasefire by US President Donald Trump, as investors await further concrete resolutions to be put forward.

It said the sell-off occurred against a backdrop of financial market turmoil amid trade war jitters, tumbling global oil prices and Federal Reserve interest rate increases, albeit likely to happen at a more gradual pace and less frequent going forward.

“Based on our observation, the bond portfolio flow trend largely correlates with Fedspeak or the language of the US Federal Reserve. Apart from economic indicators, namely the less convincing job creation numbers in November, dovish statements of key Fed officials, including chairman Jerome Powell’s remark that the current benchmark interest rate is ‘just below’ neutral, suggests less aggressive rate hikes by the Fed for next year.”

This, it said, puts into question the three indicative rate hikes for 2019 and one in 2020.

“Nevertheless, a rate hike in December remained within our expectation.”

The US 10-year Treasury note average yield was seen dropping by 7 basis points (bps) to 3.10% in October (Oct: +15 bps), while the benchmark 10-year MGS average yield decreased by 3 bps to 4.11% (Oct: +4 bps). Consequently, the MGS-US Treasury average yield spread widened to 102 bps (Oct: 98 bps).

Kenanga Research expects the ringgit to come under pressure for the rest of the year but Opec’s decision to cut oil production by 1.2 million barrels per day for the first six months of 2019 may provide some support to the currency.

“Hence, we maintain our USD/MYR end-of-year forecast at RM4.15.”

The ringgit weakened 0.16% to 4.1725 against the greenback as at 5pmtoday.

On monetary policy, the research house expects Bank Negara Malaysia to hold the Overnight Policy Rate (OPR) at 3.25%.

“As domestic economic growth is ex-pected to taper off and inflation is expected to remain subdued, we believe BNM will hold the OPR unchanged at 3.25% till year end and potentially next year, in ensuring price stability and to remain supportive of growth,” it said.


Foreign selling of Malaysian bonds picks up in November

PETALING JAYA: Foreign investors returned as net sellers of Malaysia’s debt securities in November with total foreign holdings declining by RM5.2 billion, after a short-lived increase of RM7.8 billion in the previous month, according to Kenanga Research.

It marked a fall of 2.7% month on month, the quickest pace since June 2018.

Consequently, the share of total foreign holdings of Malaysia’s debt inched lower to 13.5% from 14% in October.

The bulk of November’s decline was accounted by a net decline of Malaysian Government Securities (MGS) by RM5.4 billion (Oct: +RM4.7 billion), pulling down foreign holdings share of total MGS to 38.8% (Oct: 40.7%), as well as by a net decline of private debt securities (PDS) by RM300 million (Oct: +RM1.4 billion), slightly tilting the foreign holdings share of total PDS down to 2.1% (Oct: 2.2%).

Year to date, total net foreign bond holdings fell by RM19.6 billion.

Kenanga Research expects the outflow of portfolio funds to persist going into next year as there is a total of US$11.1 billion debt maturity in Q4’18 compared with US$6.4 billion in Q3’18, and as risk-averse sentiments remain in relation to trade war uncertainties, despite the announcement of 90-day new-tariff ceasefire by US President Donald Trump, as investors await further concrete resolutions to be put forward.

It said the sell-off occurred against a backdrop of financial market turmoil amid trade war jitters, tumbling global oil prices and Federal Reserve interest rate increases, albeit likely to happen at a more gradual pace and less frequent going forward.

“Based on our observation, the bond portfolio flow trend largely correlates with Fedspeak or the language of the US Federal Reserve. Apart from economic indicators, namely the less convincing job creation numbers in November, dovish statements of key Fed officials, including chairman Jerome Powell’s remark that the current benchmark interest rate is ‘just below’ neutral, suggests less aggressive rate hikes by the Fed for next year.”

This, it said, puts into question the three indicative rate hikes for 2019 and one in 2020.

“Nevertheless, a rate hike in December remained within our expectation.”

The US 10-year Treasury note average yield was seen dropping by 7 basis points (bps) to 3.10% in October (Oct: +15 bps), while the benchmark 10-year MGS average yield decreased by 3 bps to 4.11% (Oct: +4 bps). Consequently, the MGS-US Treasury average yield spread widened to 102 bps (Oct: 98 bps).

Kenanga Research expects the ringgit to come under pressure for the rest of the year but Opec’s decision to cut oil production by 1.2 million barrels per day for the first six months of 2019 may provide some support to the currency.

“Hence, we maintain our USD/MYR end-of-year forecast at RM4.15.”

The ringgit weakened 0.16% to 4.1725 against the greenback as at 5pmtoday.

On monetary policy, the research house expects Bank Negara Malaysia to hold the Overnight Policy Rate (OPR) at 3.25%.

“As domestic economic growth is ex-pected to taper off and inflation is expected to remain subdued, we believe BNM will hold the OPR unchanged at 3.25% till year end and potentially next year, in ensuring price stability and to remain supportive of growth,” it said.


BNM international reserves down 0.1% to US$102b as at Nov 30

PETALING JAYA: Bank Negara Malaysia’s (BNM) international reserves amounted to US$102 billion (RM424.6 billion) as at Nov 30, 2018, RM100 million or 0.1% lower than the US$102.1 billion as at Nov 15, 2018.

The central bank said the reserves position is sufficient to finance 7.5 months of retained imports and is 1.0 times the short-term external debt.


SC to regulate issuances, trading of digital assets

PETALING JAYA: The Securities Commission Malaysia (SC) will regulate issuances of digital assets via initial coin offerings (ICO) and the trading of digital assets at digital asset exchanges in Malaysia.

In a joint statement with Bank Negara Malaysia (BNM), SC said regulations are currently being put in place to bring digital assets within the remit of securities laws to promote fair and orderly trading and ensure investor protection.

“ICO issuers and digital asset exchanges which are involved in the issuance or dealing of digital assets with a payment function will need to comply with relevant BNM laws and regulations relating to payments and currency matters.

“In addition, ICO issuers and digital asset exchanges are subject to the SC’s Guidelines on Prevention of Money Laundering and Terrorism Financing,” it said.

The central bank reiterated that digital assets, which refer to digital currencies and digital tokens, are not legal tender in Malaysia and advised the public to carefully evaluate the risks associated with dealings in digital assets.

“In order to implement the regulatory framework on digital assets, the SC and BNM will enter into coordination arrangements to ensure compliance with laws and regulations under the purview of both regulators,” said the regulators.


BNM, SC say drawing up rules on digital assets

KUALA LUMPUR, Dec 6 — Bank Negara Malaysia (BNM) and the Securities Commission (SC) are working to introduce regulations for the trade and investment of digital assets, after minister Khalid Samad mooted the idea of a Pakatan Harapan Coin as…


Bank Negara official reserve assets at US$101.7b at end-Oct

PETALING JAYA: Bank Negara Malaysia’s (BNM) official reserve assets amounted to US$101.7 billion as at end of October 2018, while other foreign currency assets stood at US$52.3 million.

The central bank said in a statement that for the next 12 months, the pre-determined short-term outflows of foreign currency loans arising from scheduled repayment of external borrowings by the government and repayment of maturity proceeds from the foreign currency Bank Negara Interbank Bills would amount to US$1.47 billion.

Meanwhile, the short forward positions amounted to US$22.8 billion as at end-October 2018, reflecting the management of ringgit liquidity in the money market.

“In line with the practice adopted since April 2006, the data excludes projected foreign currency inflows arising from interest income and the drawdown of project loans amounting to US$2.5 billion in the next 12 months,” it said.

The only contingent short-term net drain on foreign currency assets are government guarantees of foreign currency debt due within one year, amounting to US$108.1 million.

“There are no foreign currency loans with embedded options, no undrawn, unconditional credit lines provided by or to other central banks, international organisations, banks and other financial institutions.”

BNM also does not engage in foreign currency options vis-a-vis ringgit.

Overall, the detailed breakdown of international reserves under the IMF SDDS format indicates that as at end-October 2018, Malaysia’s reserves remain usable, BNM added.


Govt to announce two financial frameworks next year

KUALA LUMPUR: The government will announce two key frameworks in the first quarter of 2019 regarding cryptocurrency and property crowdfunding regulations to be meted out by the Securities Commission Malaysia (SC). Finance Minister Lim Guan Eng said the Ministry of Finance (MoF) would be the coordinating body for the SC and Bank Negara Malaysia (BNM) […]