MBSB shares down on

personal loan curbs

Posted on 9 July 2013 - 05:37am
Izwan
sunbiz@thesundaily.com

Idris

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PETALING JAYA (July 9, 2013): Shares in Malaysia Building Society Bhd (MBSB) tumbled 4% yesterday from a
recent high drag down by worries that Bank Negara Malaysia's (BNM) latest curb on personal loans will hurt the
company the most.
The stock closed 13 sen lower at RM3.06 yesterday on volume of 7.4 million shares after RHB Research Institute
yesterday cut its fair value targets to RM3.10 on lower loan growth projection.
"We deem MBSB as the most vulnerable to BNM's new measures,'' RHB Research Institute said. It estimated that
70% of MBSB's total loan portfolio is made up of personal loans.
The firm also lowered its fair value for AEON Credit Service (M) Bhd to RM15.60. The stock fell as much as 1% in
early trade, before it ended the day flat at RM17.00 on thin volume.
Personal loans accounted for RM643 million, or 24% of Aeon Credit's total lending portfolio, according to HwangDBS
Vickers Research.
"We expect minimum impact on commercial banks as personal loans comprise less than 10% of their total portfolio
but generally negative for non-bank financial institutions (NBFIs) due to their large exposure to personal loans,'' it
said.
Bank Negara on Friday announced shorter maximum tenures for personal loans and mortgages, as it took fresh
measures to combat rising household debt problem in the country.
Malaysia's household debt-to-GDP ratio rose to 82.9% in March 2013 from 76.6% in 2011. Some 80% of household
debt was issued by commercial banks and Islamic banks, while the household loans market share by NBFIs and
Development Financial Institutions (DFIs) was about 12.4%.
With maximum tenure now cut by more than half from 25 years, it is possible that financiers may be forced to reduce
their loan rates.
This in turn will compress their net interest margins, RHB Research said.
As much as 80% of the lending by NBFIs including DFIs such as Bank Kerjasama Rakyat Malaysia Bhd and Bank
Simpanan Nasional comprised of personal loans. Bank Negara estimated 80% of the personal financing by NBFIs
are granted to civil servants based on automatic salary deduction scheme.
The majority of these borrowers earn a monthly income of below RM3,000.
MBSB's high concentration of personal loans to civil servants - at 70% of total loans portfolio - is the most vulnerable
to the impact of Bank Negara's tightening measures.
RHB Research said 70% of its personal financing schemes are from refinancing.
"Future demand could be hurt by the new 10-year maximum tenure requirement should its low-income customers find
difficulty to absorb a higher debt service ratio as they refinance existing loans to a shorter tenure,'' it said.
The latest round of curbs may also effectively remove some of MBSB's competitive advantage, namely its offering of
a maximum tenure of 25 years, threshold deduction as high as 70% in some packages and minimum salary
requirement as low as RM700.
"Assuming its competitors react to this regulatory ruling by lowering further profit rates, MBSB may lose out due to its
high cost of funds and lack of access to low-cost deposits,'' RHB Research said.
Meanwhile, the firm sees a marginal impact on life insurers with bancassurance exposure to mortgages and personal
financing products.

Payday loan problem: financial quick fix leads to personal

bankruptcy
Posted on Thursday, Dec. 4, 2008 11:03 AM

Payday loan problem: financial quick fix leads to personal bankruptcy

Some 10 million American households borrow money through payday loans each
year, and payday lenders now have more storefronts than McDonalds and
Starbucks combined. New research by Vanderbilt Law School Assistant Professor
Paige Marta Skiba found that payday loan applicants who received the quick cash
after their first application were significantly more likely to file for Chapter 13
bankruptcy than those whose initial application was denied.

The researchers found that first-time applicants who received a payday loan were
almost twice as likely to file for bankruptcy within two years as those denied the
first time. The interest from payday and pawn loans amounted to about 11 percent
of the total liquid debt interest burden at the time of the bankruptcy filing.

"Our research finds that payday loans and their interest payments may be sufficient
to tip the balance into bankruptcy for a population that is already severely
financially stressed," said Skiba.

Skiba and her co-author, Jeremy Tobacman, looked at four years of data for the
state of Texas from a prominent payday loan company. From 2000 to 2004, the
company received more than a million applications. The average loan request was
around $300. The median annual income on the applications was $20,000 with a
median checking account balance of $66.

"Payday loans seem to be the straw that breaks the borrowers back because the
loans are normally due every week or every other week, so other debts, like credit
cards or mortgages tend to be ignored," said Skiba.

First-time borrowers tended to continue borrowing. The researchers found that firsttime applicants who were approved applied for about five more loans within a year
than rejected first-time applicants. "Access to payday loan credit predicts roughly

$2,300 of additional payday borrowing within two years," said Skiba. As for those
who were denied their initial payday loan request, the researchers said their
probability of taking out a pawn loan doubled.

The full study, titled "Do Payday Loans Cause Bankruptcy?" can be found at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1266215.

Media Contact: Amy Wolf, (615) 322-NEWS