Foreign loan problems to haunts Malaysia

Foreign loan problems to haunts Malaysia

KUALA LUMPUR (AFP): Malaysia may face problems raising loans as its troubled economy is hit by a downgrade in its long term credit ratings outlook, analysts warned yesterday.

Global credit rating agency Standard and Poor's (S and P) decision Thursday to slash Malaysia's long-term foreign currency ratings outlook for the second time in six weeks renewed concerns about the country's economic bill of health, they said.

"Foreign lenders will now demand higher credit risk premiums and this will raise borrowing cost," said Loh Eng Seng, chief economist at TA Securities.

"But the S and P's revision is not likely to have any impact on local borrowers who mostly borrow from banks and do not access the international financial markets," Loh said.

However, he warned that a high borrowing cost in global markets over the long-term may affect Malaysian bond issuers and force them to seek funds from local banks.

"It may lead to a squeeze in liquidity and inevitably, result in slower growth in investment and consumption," he said.

According to the central bank, Malaysia's total bank loans last year stood at 319 billion ringgit (US$106 million, dwarfing the country's sovereign foreign debts which amounted to almost 73 billion ringgit.

Total domestic private debt securities was about 33 billion ringgit.

A former treasury official, Ramon Navaratnam, said that the downgrading was "highly regrettable" and would unfortunately lead to "more difficulty for the economy and inhibit growth."

Malaysia's export-driven economy has been growing at a rapid rate of about eight percent annually over the last decade on the back of foreign investments.

"I believe there will be some very positive announcements in the budget which will put the economy very much on track," he told AFP.

News of the S and P's revision on the ratings outlook from "stable" to "negative" immediately sent the Malaysian ringgit plunging to a new record low of 3.1450 to the dollar Thursday, although the currency recovered some lost ground on Friday, dealers said.

But the stock market appeared to have ignored the news, with share prices holding steady on Friday.

David Yong, head of research at CapitalCorp Securities, said the impact was not as severe as perceived although it would now be "more expensive for the government and local companies to borrow money outside."

"We have been forewarned when they downgraded the outlook from positive to stable on August 18," Yong said, pointing out that there was "validity" in the concerns expressed over the high loans growth.

According to official statistics, total bank credit in August grew 28.6 percent from a year earlier to 376 billion ringgit, a level considered high despite curbs on bank loans for shares and properties in April.

An analyst with a foreign brokerage said local funds could be artificially supporting the market to "save face."