Wednesday, October 6, 2010

PEMANDU Acting Fast And Loose With The Numbers…Again

Once is an accident, two a coincidence, three times…well.

I first remember seeing this particular stat at the ETP Open Day, but didn’t think much of it at the time…maybe I should have looked closer. But this article shows that others are picking up on the “fact” that loan growth has moderated in the last five years compared to the early part of the decade (excerpts; emphasis added):

ETP to help revitalise financing sector

High loans growth seen in construction, real estate and transport sectors

PETALING JAYA: Loans growth from banks’ domestic operations which had shown signs of moderation over the past five years is expected to be boosted by increased activities under the Economic Transformation Programme (ETP).

Based on statistics released under the ETP, loans growth from banks’ domestic operations had moderated to a compounded annual growth rate of 10% in the five-year period of 2005 to 2009 versus 13% between 2001 and 2005…

…ECM Libra head of research Bernard Ching noted that since RM360bil, or 27%, of total investment would be through foreign direct investments, the domestic private sector would have to fund the remaining investments of about RM870bil.

“Assuming that these investments will be funded by 30% equity, the remaining RM609bil will either be funded by bank borrowings or private debt securities,” he said.

RAM Holdings Bhd senior economist Kristina Fong said the large requirement for private sector investments would boost the need for financing.

“The ETP projects should help to revitalise the financing sector.

“There is scope to extend more loans to the commercial sectors and hopefully, the projects can provide a broad-based resurgence in industry-related loans,” she said.

So what’s wrong? This chart explains my problem (log annual changes):


I don’t see general moderation. In fact I see the exact opposite – instead of loan growth slowing in the last five years, it looks to me that on an overall basis it accelerated. Adding in growth in private debt securities doesn’t reconcile the differences either. Maybe PEMANDU is hiving off foreign currency lending; but that’s a pittance at RM20 billion, compared to a total banking system loan book of RM850 billion.

So where is PEMANDU getting these figures? Or, as they did with subsidies, they have a different version of the truth?

BTW, the idea that supporting the financing of the ETP programs will boost the financial sector is bunk. Even if we assume banks underwrite the whole lot, we’re talking about just 8% compound annual loan growth. If the PDS market absorbs much of the demand (and it will, given the type of projects we’re looking at), then we’re obviously looking at much less.


  1. Do not drink and drive....

    Why so hancus their "quality control" on data? Main tibai aje...pastu minister main angguk aje

  2. What gets me is that all these analysts and research guys just accepting PEMANDU's version of the data without question - don't they track the same data?

  3. Dear HishamH,
    The bulk of loan growth has been geared towards the consumer sector (i.e.mortgages & credit card). Maybe Pemandu was talking about non consumer facing loans?

    But technically you are correct in calling out the assumptions. Loans have been accelerating over the past several periods - but then again, how much of that would be captalized interest and how much new loan?

    The thinking behind the ETP has revealed that even a cursory glance at the project itself shows it to be non financially viable. Banks/investors that finance these projects will be taking a mixture paraquat laced with arsenic. Penumpang Analysts have shown for example the KL Greater MRT to be 100% completely non financially viable.

    Jala & Co likes to dream big numbers. The bigger the number the better. From taking about billions they jumped straight to the trillion mark. The PM laps it up.

    In the meantime, what actually is the trend of DDI? MITI says that it wants to DDI to overtake FDI but this year FDI is still overtaking DDI. (Both are fighting to be number 1 under the snails pace category). I aksed the Deputy Minister of MITI, and I hope the pro Tun bloggers take note, I asked the Deputy Minister whether he was happy with the current investment performance. He said yes.
    I then showed him the projections of future investment under the Jala Framework. He says MITI does not track such numbers.

    What gives?????

    Raise RM 320 billion in FDI? Raise 870 billion from bank loan or PFI? Who is Jala kidding?

  4. Wenger, I think these are "con"-sultant numbers i.e. find the stats that support your argument.

    On your conjecture, there's no breakdown by sector pre-2006, so it's hard to say if its just non-consumer loans. But I don't think it's likely as consumer lending trend is just the opposite of total loan trends i.e. high in the early part of the decade and lower in the latter half of the decade (with the exception of the past year). That suggests business lending has accelerated in the last five years.

    (Credit cards, btw, is a small fraction of loans, about 3.4% share over the last 4 years).

    On the other hand, I don't think the actual numbers will be that hard to achieve. The banking system has the resources to do it given the time span.

    The key question, as you point out, is whether the projects being proposed actually make sense for the banks to finance, from a credit-worthiness point of view.

  5. I think the only proposals worth financing right now are to open up management consultancy firms. But I have to hand it to the Ministers. There is a wealth of talent within the system i.e brilliant technocrats left to rot or "castrated" such that their opinions are never sought. These folk would call it as it is and will back up their arguments with a) data and b) cogent reasoning.
    Perhaps it is because of these attributes of telling the truth that they are shafted to oneside. Ministers then consult with Lab rats who dream up the numbers and projections they seek. The curves are monotonic increasing, the numbers point to the sky. They Ministers lap it up and conjecture becomes acceptable fact.

    Unfortunately the markets aren't impressed with this sort of Excel induced skullduggery. And lo' and behold, they will be the final arbitrator in this nonsense