'Exercise care but keep lending to viable firms'

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Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz says its surveillance indicates that Malaysian banks are not tightening credit

LENDING by local banks remained strong last year, but lenders have been told to balance the need to be careful with loans with continued support of viable businesses, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said.

"There has been a growth in lending of 8-10 per cent across the board; household, small- and medium-sized businesses and outstanding loans have increased," Zeti said in an interview with Business Times.

The industry has the capacity to provide access to lending because domestic banks have experienced high profits for an extended period of time, are well capitalised and have less bad loans.

The global financial crisis spooked lenders initially, but Bank Negara has told them not to overreact.

"We have worked very hard to put in place appropriate governance, risk management practices, so banks must conduct prudent lending and also extend assistance to those viable businesses which experience difficulty due to the current environment."

On reports that banks were tightening credit, Zeti said its surveillance indicated that it was not so.

Many banks have put in place arrangements to restructure loans and provide advisory services to their clients.

Bank Negara expects prices to continue falling in the first half of this year and the Consumer Price Index, the barometer of inflation, to decline to three per cent.

Malaysian banks also have enough money, as reflected in the interbank market where banks go to borrow money. They are net lenders, meaning they lend more than they borrow.

This also means that it is unlikely for the central bank to provide funding to local lenders, which is now the norm in the West.

"We have absorbed liquidity during 2007 and early part of 2008 and have outstanding amounts of almost RM150 billion that we can unwind and provide to the system.

"And we have in place a robust liquidity management framework that provides access to liquidity not only to the banking sector but also insurance companies - for both normal and stressed conditions."

Zeti also pointed out that the financial system in Malaysia differed from others, especially in the mobilisation of deposits by the banking sector.

The deposit ratio to gross domestic product is 147 per cent, reflecting stable and robust growth, while the loan:deposit ratio is 75 per cent, far exceeding the loans that have been extended.

Deposits also enjoy 8.5 per cent annual growth, reflecting a propensity to save.

Business Times- Rupa Damodaran