Wednesday, December 7, 2016

ICYMI: Talking FX on BFM

Me, pontificating on the Ringgit and BNM’s new measures, over the past week:


  1. Hi Hisham, could you shed some light as to how BNM's new measures on currency affect Labuan's banks?

    1. @anon

      By rights, Labuan shouldn't be affected at all as they didn't deal in Ringgit up to a few years ago. There was some liberalisation of the rules dealing with residents in Ringgit, but it's not clear to me if there would be much if any impact.

  2. Please clarify whether the present EPF situation is still as bad as said in:

    1. @anon 5.30

      You can find the official reply here:

      My unofficial reply:

      1. We give no sweetheart deals. Loans given by EPF are at commercial rates or better, never less. The main reason why a borrower might approach EPF is that banks might not be able to swallow the size of the loans required, or need to do syndication which raises the cost of borrowings. Under those circumstances, it might make sense for a company to borrow from EPF, though they will have to pay a premium over market. Second, lower returns are a function of two things: poor equity market performance over the past few years, and historically low interest rates.

      2. The constitution of Malaysia does not "cap" government borrowings. Limits on government borrowing are actually governed by a number of acts of Parliament. Current borrowings are well within the defined limits.

      3. We don't do bailouts, politically connected or not. If a company is not doing well, we drop it off the portfolio (as in the FGV example).

  3. Hi Hisham,

    Can I ask you a question on external accounts?

    In particular, I am having trouble understanding the capital account. A way of reflecting my question on the capital acct is in the mismatch that I found between the change on Net International Investment Position and the Current Account. My understanding is that, in theory, the change in NIIP should equal Current Account plus valuation adjustments due to FX or prices of assets (eg. foreign holdings of MGS should show as liability in NIIP that reduces in USD value as MYR depreciates – that is, an increase in NIIP). However, there is a large divergence between CA surplus and change in NIIP since 2010 (not even in years where ringgit was stable, 2012 and 2013, signs match). The original reason I started to look this into more detail is that, given the historic large CA surpluses, I was hoping to see a large net positive NIIP (but this is not the case). Is there anything you think I may be missing?

    Thank you in advance and best regards,


    1. @Armando

      Off the top of my head, there is a methodological difference between how assets and liabilities are recognised in the NIIP and the BOP. The NIIP will include not only valuation changes, but also retained income. The latter isn't included under the BOP - income flows are only recognised when that income is repatriated.

      A second issue is that while statistical authorities will have good estimates of the liabilities under the NIIP (since these are domestic), estimates of foreign assets and incomes would be less reliable.

      I don't know if these would be enough to explain the divergence though.

  4. Bro Hisaham,
    If possible can you share the trend of malaysia export and import figure for the past 10 years. Currently we are still running trade account surplus but in terms of percentage how much is actually import size now compared to export? Let say import is 85% of export,im wondering whether BNM new rules forcing exporter to convert 75% of export is enough to contain ringgit weakening without affecting BNM reserve. Since i dont have the actual figure, I assume not sufficient unless the country experiencing capital inflow.

    1. @anon 11.20

      It's not the export/import numbers that are the problem. Since the current account remains in surplus (and thus a net inflow), sooner or later that should - in theory - support the Ringgit.

      However, BNM data shows that since 2010, less than 1% of all export proceeds have been converted into Ringgit. Now THAT's a problem. In essence, it's as if we had a trade deficit instead.