Latest news with #LiewCheeYoong
The Star
19-05-2025
- Business
- The Star
Local banks remain steady amid US tariffs and geopolitical risks
PETALING JAYA: The Malaysian banking system is not out of the woods yet, as it continues to face headwinds despite the injection of around RM19bil from the recent 'aggressive' cut in the statutory reserve requirement (SRR) ratio. On May 8, Bank Negara announced that the SRR would be reduced from 2% to 1%, effective May 16. This would release about RM19bil into the banking system amid heightened volatility and uncertainty in global financial markets. However, the central bank left the overnight policy rate (OPR) unchanged at 3%. Economists and analysts noted that while the banking system remains well-capitalised, it still faces risks from US tariffs and geopolitical tensions, despite temporary relief from a 90-day agreement between the United States and China to reduce steep tariffs Most agree that the outcome after the 90 days will be crucial in determining the broader economic impact, which, in turn, will have some effect on the banking sector. The anticipated slowdown in economic growth this year – driven by tariffs and escalating geopolitical risks – could potentially trigger a trade war, dampening global growth and leading to lower interest rates. Lower interest rates are expected to compress banks' net interest margins (NIMs), a key measure of profitability. Currently, the benchmark lending rate, or OPR, stands at 3%, with some economists forecasting at least one rate cut this year. Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that a lower interest rate environment could make a comeback amid heightened global uncertainty from tariff shocks. 'If that happens, it would have an impact on banks' NIM, especially those banks that have a bigger share in variable-rate financing (loan) contracts.' He said weaker gross domestic product (GDP) growth prospects means banks may need to have higher financing loan loss provisions that could affect their earnings in the current year. Tighter credit underwriting standards would also impact loan growth, which could affect NIMs and profitability. 'Intense competition is here to stay. It's a challenging outlook for banks on the whole this year,' he noted. Mohd Afzanizam expects loan growth to reach around 5% for the year. That said, he believes banks' financial positions are still robust and should be able to withstand tariff-related shocks. 'I think the foreign investors are fully aware of this and they would be more than happy to have greater exposure to banking stocks as they are proxy to Malaysia's economic health,' Mohd Afzanizam said. UCSI University Malaysia associate professor of finance and Centre for Market Educationresearch fellow Liew Chee Yoong UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong also expects NIM to face continued compression pressures in 2025. He noted that the confluence of rising deposit competition, stagnant interest rates, and limited room for further loan repricing may weigh on NIM levels across the banking sector. Banks experienced mild margin erosion in 2024, and this trend is expected to persist unless the lending mix shifts decisively toward higher-yield segments such as unsecured personal financing or small and medium enterprise loans, he said. As banks continue to digitalise and adopt new financial technologies, he said their ability to grow non-interest income may offer partial insulation against NIM pressures. 'While margin performance may not dramatically deteriorate, banks will have to work harder to preserve profitability, particularly in an environment where monetary conditions are largely neutral and market yields are plateauing. 'Hence, the NIM outlook for 2025 leans toward a marginal decline or, at best, flat performance compared to 2024,' he said. 'Should inflation remain sticky or unemployment rise, banks may experience a deterioration in asset quality, particularly in unsecured consumer loans. 'Hence, while resilient, the sector must remain vigilant and agile in managing credit risks and regulatory burdens,' he said. RAM Rating Services Bhd senior vice president of financial institution ratings Wong Yin Ching Meanwhile, RAM Rating Services Bhd senior vice-president of financial institution ratings Wong Yin Ching said banks' profits may face pressure in 2025 in line with more moderate loan growth and increased provisions. NIMs are envisaged to stay largely unchanged, with the lower SRR having a mild positive impact. 'NIMs will be predominantly influenced by the direction of the OPR. At this juncture, RAM expects the OPR to remain stable for the rest of the year unless economic growth slows significantly, which is not our base case,' she said. RAM expects slower GDP growth of 3.5% to 4.5% in 2025, down from 5.1% last year. Despite the SRR reduction, she said the rating agency is maintaining its loan growth projection of 4% to 4.5% for the banking sector, citing ongoing trade negotiations as a key uncertainty. 'Consumer loans, particularly home loans, will drive domestic loan expansion, given weaker sentiment and increased caution by businesses. 'Calls for potential deferment of the targeted petrol subsidy rationalisation and revision of the sales and service tax rates and scope, may further support consumer spending,' Wong said.
The Star
30-04-2025
- Business
- The Star
Revenue drawback with SST delay
PETALING JAYA: The postponement of the expanded scope of the sales and service tax (SST) is expected to help safeguard economic stability at a time of heightened global uncertainty, say economists. Nevertheless, they cautioned that the move is not without costs, as the delay in implementation could result in a short-term decline in government revenue. UCSI University Malaysia finance associate professor and CME research fellow Dr Liew Chee Yoong pointed out the delay in rolling out a wider scope of SST will 'almost certainly' cause the country to miss at least 'a portion' of the additional RM5bil revenue target initially set for 2025. Liew added that given the deferment will likely push the implementation to September or later, the government will lose roughly one-third of its potential taxable period. 'Assuming a steady rate of revenue collection, this would amount to a loss of about RM1.6bil to RM1.8bil,' he told StarBiz. He said when positioned against the government's total projected revenue of RM339.71bil for 2025, the RM5bil expected from the expansion of the SST scope would have contributed about 1.47% of the total. Consequently, the estimated shortfall of RM1.6bil to RM1.8bil corresponds to about 0.47% to 0.53% of total projected revenue. 'Though numerically small, this shortfall is significant in a context where Malaysia is aiming to reduce its fiscal deficit to 3.8% of gross domestic product (GDP) this year. Even minor setbacks in revenue can have disproportionate impacts on fiscal consolidation targets, making the delay fiscally meaningful,' Liew said. The expansion of the SST scope was announced during the tabling of Budget 2025 last year by Prime Minister Datuk Seri Anwar Ibrahim. Back then, Anwar said the sales tax will be imposed on non-essential items, including imported premium items like salmon and avocado. Further, the service tax will be expanded to include business-to-business commercial transactions, particularly fee-based services, that were previously exempted. On Monday, the Finance Ministry announced that the enforcement of the SST scope expansion, which was slated to take place on May 1, will be implemented at a later date. The gazettement of the new tax changes, which was originally supposed to take place in the first quarter of this year, is now scheduled for June 1. It was noted that nationwide engagements with industries to finalise the scope of the expansion and applicable tax rates have been completed. Last November, the government said it expects to raise an extra RM5bil in revenue by enlarging the scope of the SST. Revenue was projected to hit RM51.7bil from the initiative, up from the forecast of RM46.7bil for 2025. While Liew said the decision to delay the expansion of SST scope is 'justified and strategically sound', he also noted the move is not without costs, though the pros outweigh the cons at least in the short term. 'The delay protects domestic consumption, which is pivotal to economic recovery. It supports overall growth momentum and shields households from the rising cost of living. 'Furthermore, it aligns Malaysia's policy approach with other global economies that are favouring fiscal caution over aggressive revenue measures amidst a fragile recovery,' he said. However, beyond the expected revenue loss, Liew also cautioned that there may be a reputational risk regarding the country's fiscal discipline, as delays may send mixed signals to investors and international credit rating agencies. 'Despite these drawbacks, safeguarding economic stability at a time of heightened global uncertainty is a more critical priority. Thus, the decision reflects a pragmatic balancing of risks where protecting the economy outweighs immediate revenue considerations,' he said. Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Dr Mohd Afzanizam Abdul Rashid said the postponement of the SST scope expansion should be seen in the context of broader global developments. Specifically, he stated the tariff shocks imposed by US President Donald Trump on April 2 present a challenging prospect, especially for the local manufacturing sector, where more than two-thirds operate in export-oriented industries. 'Already, we have seen major organisations such as the International Monetary Fund and World Bank revise down their global growth forecast including Malaysia's GDP growth this year,' Mohd Afzanizam said. Hence, he is of the view that the deferment of the SST scope expansion reflects the government's pragmatic approach in enacting policy measures by constantly looking at the current economic trajectory in order to arrive at a realistic outcome. Since the expansion of SST scope has been deferred, Mohd Afzanizam said the RON95 subsidy rationalisation plan is expected to go ahead as planned. 'If that is the case, then perhaps the government's fiscal deficit-to-GDP target of 3.8% for 2025 would not deviate much,' he said. Meanwhile, Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the brief delay in the enforcement of the SST scope expansion is unlikely to cause the government to miss its target of obtaining the additional RM5bil in revenue. Wong opined the reason for the deferment is probably because the authorities and relevant ministries needed more time to fine tune the details of the SST scope expansion, rather than the uncertainties arising from the US' tariffs. 'If the delay was due to the latter, it would likely extend beyond a month, possibly until after the ongoing 90-day pause, allowing businesses to better assess the impact of the tariffs,' he said. Wong said what is more important at this juncture is the implementation of e-invoicing to ensure the proper and effective rollout of the expanded SST scope. The government has announced a six-month delay for the implementation of Phase 3 of e-invoicing earlier this year, pushing it to Jan 1, 2026, from the initially scheduled date of July 1, 2025. 'The SST scope expansion is not the only aspect that matters when it comes to revenue collection, but it is the e-invoicing system that matters the most,' said Wong. He added that the enlarged scope includes fee-based commercial service provisions, which more often than not are not properly recorded as income revenue by the providers. This will end up becoming part of the informal economy. 'With e-invoicing, every such transaction will be invoiced and submitted to the Inland Revenue Board, enabling the government to better capture the corresponding tax revenues,' he said. To this end, Liew said the country has several viable fiscal strategies to strengthen its financial position, in response to the revenue shortfall created by the delay in the SST scope expansion. One major approach is in enhancing tax compliance. 'The informal and shadow economy accounts for roughly 18% to 20% of Malaysia's GDP. Strengthened enforcement and digitisation initiatives like e-invoicing, could yield between RM3bil and RM5bil annually,' he said. Other recommendations include the introduction of new taxes, public asset monetisation for one-off revenues and the potential reintroduction of a more targeted and progressive form of the Goods and Services Tax (GST-lite). 'Strategic divestments of non-essential government land or government-linked companies could result in one-off revenues of between RM5bil and RM10bil. 'Broader structural tax reforms like GST-lite could be deferred until the nation's economic recovery is firmly anchored, likely post-2026, to minimise shocks to household consumption and business investment,' Liew said.
The Star
22-04-2025
- Business
- The Star
No running from insolvency
KUALA LUMPUR: The plan to introduce the Cross-Border Insolvency Bill is a positive step forward in enhancing Malaysia's legal and institutional frameworks for insolvency matters involving multiple jurisdictions, say experts. They also said that such a Bill is crucial as Asean economies are increasingly interlinked through trade, investments and supply chains. The Association of Banks in Malaysia (ABM) said strengthening efficiency in insolvency proceedings is key to improving transparency, especially where companies operate across borders and have assets in various countries. It said the government's alignment with internationally recognised standards, such as the model law of the United Nations Commission on International Trade Law (Uncitral) on cross-border insolvency, is a step that supports Malaysia's standing in the regional and global financial community. 'Efforts that improve creditor protection and facilitate effective corporate rehabilitation efforts are crucial in supporting business continuity and investor confidence, especially in today's interconnected economic landscape,' ABM said in an interview. It also said clear and practical guidelines for the recognition and coordination of cross-border insolvency proceedings should be included in the Bill. The association said the Bill also should promote effective judicial cooperation between Malaysia and foreign courts or representatives in insolvency matters. UCSI University Malaysia associate professor for finance Dr Liew Chee Yoong said the proposed Bill reflects a broader commitment to modernising Malaysia's insolvency laws by aligning them with international standards, such as Uncitral. 'By adopting its principles, Malaysia can promote greater legal certainty, streamline administrative procedures, and ensure the fair treatment of domestic and foreign creditors,' said Prof Liew, who is also a research fellow at the Centre for Market Education. He warned that with the absence of a structured cross-border insolvency framework, the risk of legal fragmentation, asset loss, and delayed debt recovery becomes significant. 'This Bill, therefore, enhances regional financial stability by providing a consistent legal mechanism for creditors to recover their claims, irrespective of where the assets are located.' Prof Liew noted that the proposed Bill is designed to support corporate rehabilitation efforts, and by recognising and integrating corporate rescue mechanisms. He said it signals a shift from a liquidation-centric model to one that prioritises business continuity and restructuring. 'This shift not only preserves economic value and jobs but also bolsters investor confidence in Malaysia as a reliable and resilient business environment. 'Additionally, allowing provisional relief such as asset freezes or preservation orders before full recognition of foreign proceedings can protect assets from being dissipated during legal delays. 'Provisions should be included to mandate training programmes for judges, legal professionals and insolvency practitioners to ensure effective and consistent application of the new law,' he added. Datuk Seri Azalina Othman Said had said local creditors of insolvent companies with assets within the Asean region may be able to recover their debts soon. The Minister in the Prime Minister's Department (Law and Institutional Reform) said this was among the measures that are being proposed under the Cross-Border Insolvency Bill to be tabled in Parliament this June.
