I think I’ve finally settled down enough to start writing for the blog again, but posts will be a little sporadic still until I feel like I’ve got all the pieces of my new job in place. That might still take some time, so I’ll be focusing less on day-to-day data releases, and more on big picture stuff for now. I’ll probably go back to more regular posting in a few months or so.
In the meantime, Bank Negara released their annual report yesterday. There’s no big surprises in terms of their view on the economic outlook – better recovery in advanced economies (leading to higher export demand), and moderating growth in emerging markets. They’re less pessimistic on growth prospects for the latter than many others are. The Governor for instance was quite emphatic that China will be able to overcome their structural and financial imbalance issues, and avoid a hard landing.
What it boils down to is a growth forecast of 4.5%-5.5% for the Malaysian economy in 2014, with private consumption slowing but trade picking up. They think the current account will remain in surplus, though imports of “lumpy” capital goods might cause a deficit in one or two quarters. No big surprises there.
The part I was more interested in was financial stability, and here BNM provided a wealth of data and a lot of comfort. The bad news first – household debt climbed to 86.8% of GDP, more due to the sharp slowdown in nominal GDP growth we saw last year than any jump in borrowing. HH borrowing in fact slowed down quite a bit, to 11.7% in 2013 from 13.5% in 2012.
More to the point, the coming into force of the Financial Services Act in the middle of the year has allowed BNM to lower the boom on non-bank financial institutions (NBFIs), which have been most responsible for the sharp rise in personal financing over the last few years. Lending to households by NBFIs halved in 2013, dropping below 10% for the first time in yoinks. Macroprudential measures are working.
Leverage is still distressingly high for the lower income group (7 times income for households earning less than RM3000 a month), but at least the situation isn’t deteriorating further (useful nugget of info: 80% of over-leveraged borrowers in the sub-3000k segment are civil servants).
There was also a plethora of information presented on the stability of the banking system, including the results of stress testing of the banking system. These pretty much say that the banking system won’t be jeopardised by anything less than a downturn on the scale of the 1997-98 crisis, and even then it should pull through without needing any bailouts.
I’m impressed with the range of approaches BNM used – it’s as if they’ve taken on an almost MMT or Minskyian attitude to analysing financial stability.
There’s the recognition that credit is an economy-wide risk factor, and not just at the level of households, firms or government alone. There’s the attempt at measuring contagion risks from one or more trade partners. There’s the simultaneous announcement on the new banking reference rate framework, which should ensure that banks don’t underprice credit risks and strengthen the policy transmission mechanism from the OPR to lending rates. They’re even looking at monitoring household debt service ratios on an almost real-time continuous basis, by hooking up with Inland Revenue and EPF. Both the Annual Report and Financial Stability Report have box articles that would satisfy any wonk.
In short, there’s nothing to fault here.
If I have a worry, it’s this – the current leadership of BNM and most of the financial system, are the generation that lived through 1997-98. But within the next ten years or so, they will start to retire – the Governor for instance will be 67 this year. Within 15-20 years or so, senior leadership will start being passed on to individuals who’ve never experienced a major crisis first hand (no, 2008-2009 doesn’t count).
Much of current stability of the banking system is based on the caution and prudence of people who’ve learned their lessons the hard way. Their successors won’t have that benefit and 30 years from now, we could be having our own Minsky moment.