KUALA LUMPUR- Malaysia’s economy could shrink as much as 2.0 per cent for 2020 as a result of the coronavirus disease (Covid-19) pandemic, Bank Negara Malaysia (BNM) said in its Economic Monetary Review 2019 report.
The central bank concurred with the International Monetary Fund’s prediction of a worldwide recession matching the severity of the 2008 Financial Crisis, as countries grappled with Covid-19.
The report said the pandemic introduced significant uncertainties as a result of countries’ measures to try and contain the spread of Covid-19, putting pressure on global trade that grew by just 1 per cent last year due to unresolved trade tensions.
“Against this highly challenging global economic outlook, Malaysia’s GDP growth is projected to be between -2.0 to 0.5 per cent in 2020.
“The domestic economy will be impacted by the necessary global and domestic actions taken to contain the outbreak,” BNM said in the report.
The lower end of the prediction is the most pessimistic to date, exceeding the World Bank’s revised outlook of a 0.1 per cent contraction for Malaysia this year.
Tourism is set to be the worst-hit sector due to the travel restrictions countries have imposed to limit their exposure to Covid-19 as well as lingering aversion to travel once the health crisis subsides.
Aside from Covid-19, the local economy was also vulnerable to volatility in global oil prices as well as possible fluctuations in the production of key commodities such as palm oil.
BNM acknowledged that the unprecedented movement control order (MCO) Putrajaya implemented and extended to contain Covid-19 would weigh on economic activities but projected a recovery as early as the second half of 2020 or 2021 at the latest.
The central bank pointed out that both it and the federal government have taken aggressive measures to support the economy in this challenging period, citing the automatic six-month loan moratorium starting April as well as Putrjaya’s Prihatin stimulus package, among others.
If BNM’s predicted contraction comes to pass, it would be the first time that Malaysia’s economy has receded since 2009, when it shrunk 1.5 per cent in the aftermath of the global banking crisis then.
However, both pale in comparison to the turmoil that befell the country one year after the 1997 Asian Financial Crisis, when the economy contracted 7.4 per cent.
Privately, BNM officials expressed belief that the economic uncertainty from Covid-19 would dissipate quickly once the health crisis can be resolved, citing the country’s strong fundamentals.
Malaysia’s economic growth has moderated in recent years and expanded by just 4.3 per cent in 2019.
BNM runs stress tests to see if Malaysians can survive sharp dive in house values, income
KUALA LUMPUR, April 3 — A Bank Negara Malaysia (BNM) simulation of a housing price shock concluded that 3.4 per cent of borrowers were at risk of loan delinquency if their home’s value declined by 50 per cent.
The central bank’s Financial Stability Review 2019 report included the findings of stress tests it performed on scenarios where home prices and incomes fell sharply due to economic turmoil
The tests examined how borrowers would react in the event their income fell enough that repaying loans meant foregoing basic needs, if their home value became less than what they owed, or both.
It concluded that most would choose to dip into their retirement savings or borrow informally to avoid becoming delinquent, due largely to the harm this would do to their creditworthiness.
“Defaulting is also unfavourable for owner-occupiers, who account for the majority (82 per cent) of Malaysian housing loan borrowers, as this would result in the borrowers losing their homes.
“However, households with negative financial margin and negative equity are in a particularly perilous position as they lack both the incentive and means to repay their loan,” the report said.
In a scenario where home prices alone fell by 20 per cent, similar to what occurred after the 1997 Asian Financial Crisis, at-risk borrowers would rise to 2 per cent from the baseline figure of 0.1 per cent.
For the second scenario in which property prices halved, effectively wiping out nine years of accumulated appreciation, the proportion of vulnerable borrowers was 3.4 per cent.
In the final scenario where household income falls 10 per cent and home values decline by 20 per cent, at-risk borrowers were also 3.4 per cent.
However, the second scenario was more damaging for lenders, with BNM estimating their capital losses to be RM58 billion versus RM38.6 billion for scenario two. The first would wipe out RM21.8 billion in Malaysian banks’ capital.
Those most likely to be at-risk borrowers in the third scenario with the “Double Trigger” are typically highly-leveraged households in the Klang Valley, Johor and Penang, due to the likelihood that they took out larger mortgages to be able to buy homes in these areas.
“The results affirm the ability of banks and most households to withstand even severe house price and income shocks.
“These results can be attributed to generally prudent loan affordability standards applied by banks when extending loans to households, and the strong levels of capitalisation maintained by Malaysian banks,” BNM said.
It also went on to repeat its previous assessment that home prices in the country were seriously unaffordable relative to Malaysian households’ income levels.
MALAY MAIL
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