Malaysia set to curb loans growth

Malaysia set to curb loans growth

KUALA LUMPUR (AFP): Malaysia's central bank is expected to call for curbs on lending in its upcoming annual report and outline broad-based strategies to expand the banking system, economists say.

Bank Negara's 1996 report will review the past year in detail and outline the prospects of one of the world's most dynamic economies following its successful soft landing from breakneck growth rates in recent years.

Finance Minister Anwar Ibrahim last month said that the country's 1996 gross domestic product (GDP) growth slowed down to a more manageable 8.2 percent after a dizzying 9.5 percent expansion a year earlier.

Anwar, who is also deputy premier, said the country's current account deficit last year narrowed to about 11.2 billion ringgit (US$4.5 billion) from a high 17.8 billion ringgit in 1995.

Last year's GDP growth had been accurately predicted by Bank Negara in its 1995 annual report, but it did not anticipate the sharp fall in the 1996 current-account deficit, which has been credited to a surge in exports.

Gan Kim Khoon, research manager at SocGen Crosby, said Bank Negara was expected to forecast 1997 GDP growth of between 8.0 and 8.2 percent and a current-account deficit of 11 billion ringgit to 15 billion ringgit.

"There is basically nothing much to expect in terms of major economic policy as Bank Negara is not known to use the report as a tool to announce specific monetary measures," Gan told AFP.

But C.S. Lum, an economist at Phileo-Allied Securities, said that among the priorities of Bank Negara would be finding measures to ease the strong loans growth, which surged 28.8 percent in January and compared to deposits growth of 26.3 percent.

"Loan growth especially to the property sector and the finance, insurance and business services were high and we can expect Bank Negara to set some guidelines for these two industries," Lum said.

Neighboring Thailand is currently reeling from a financial crisis stemming from excessive lending by banks to a glut-hit property sector.

Other analysts see a possible easing of Malaysian monetary controls in the second half of this year following the economy's successful soft landing.

In other areas of the financial system, banking sources said Bank Negara was trying to put a figure on the amount repatriated by an estimated two million foreign workers in the labor-starved country of 20 million people.

Such remittances were in the past lumped under the "errors and emissions" item but would now be classified under "transfers (net)" in the balance of payment account, they said.

"The government realizes that foreign workers are vital to the country's economic development and they have every right to remit their incomes. The idea is to be transparent in our national accounts," said an analyst.

"If so, this would paint a more accurate picture of the country's payment balance account although the current account deficit may be slightly higher," said Phileo's Lum.

Lum also expects Bank Negara to announce broad-based strategies to encourage banks to undertake a "universal banking system" that would see them carry out different financial activities under one roof.