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BNM: Some recovery in business environment seen in second half of 2020

02/04/2021 06:19 PM

KUALA LUMPUR, April 2 -- The operating environment for businesses saw some recovery in the second half of 2020, as movement restrictions gradually eased in most parts of the country. 

In its Financial Stability Review -- Second Half 2020 report released Wednesday, Bank Negara Malaysia (BNM) said compared with the halt in economic activities across most business sectors in the first half of 2020, the containment measures implemented in the second half were less restrictive and more targeted.

"The recovery, nevertheless, has been uneven across different business sectors.

“There have been sustained improvements in the manufacturing sector while consumer-related sectors benefitted from relaxations in domestic movement restrictions in the second half of 2020,” it said.

However, consumer-related sectors, including wholesale and retail trade, and hotels and restaurants, which accounted for 7.5 per cent of total banking system loans, experienced a relatively slower recovery amid continued weakness in consumer sentiment, BNM said.

In addition, business closures and retrenchments in tourism-related industries increased, as some firms in these segments incurred heavy losses and faced prospects of prolonged weakness in demand. 

The central bank said exposures in these industries remained small, at 2.5 per cent of the total banking system loans.

As for the oil and gas sector, it said while oil prices have increased amid continued volatility in demand, a full recovery of the sector’s activity to pre-pandemic levels remains dependent on the pace of global economic recovery.

Meanwhile, the report noted that the growth in household debt also normalised to pre-COVID-19 levels in 2020’s second half as the country emerged from stringent movement control restrictions. 

"Growth was mainly driven by vehicle and housing loans, which expanded by 6.1 per cent and 7.4 per cent, respectively, lifted by the strong response to the sales and services tax incentives for vehicle purchase and various homeownership incentives.

"Personal financing also registered a higher annual growth of 7.1 per cent, partly due to the suspension of repayments during the automatic loan moratorium period," it said. 

On aggregate, BNM said, the household debt-to-Gross Domestic Product (GDP) ratio rose to 93.3 per cent mainly due to the GDP remaining below pre-crisis levels. 

"A concern over high household debt is that it may lead to a rapid deleveraging by households in the aftermath of a crisis, thus dampening or derailing economic recovery. 

"There has not been significant evidence of this, with new banking system disbursements to households reaching 112 per cent of their corresponding levels in the same period last year," it said.

According to the report, these disbursements have been mainly extended to middle- and high-income borrowers (71 per cent) who can still afford to take on more loans. 

"Among lower-income borrowers, measures over the years to encourage more responsible borrowing behaviour have partly mitigated adverse impacts on their finances," it said. 

Activity in the housing market also rebounded after hitting a historical low in the second quarter of 2020, with transaction volumes growing at a pace comparable to the average quarterly growth seen before the pandemic. 

"This reflects a positive response to measures introduced by the government to support demand such as the Home Ownership Campaign and stamp duty exemptions.

“The low interest rate environment also encouraged purchases for both own occupancy and investment purposes,” it said. 

BNM also said that demand for financing correspondingly rose in line with market activity, with housing loan application growth picking up across most price segments except for houses priced below RM300,000.

It said that average transaction values recorded a second consecutive quarter of positive annual growth as market activity was more concentrated in the mid- to higher-priced segments, mainly in the secondary market, whereas buyers were more likely to be those whose incomes had been less affected by the pandemic. 

"This continued to support the growth in average house prices, as measured by the Malaysian House Price Index, although prices increased at a more moderate pace during the third quarter of 2020," it said. 




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