Are Malaysian banks in for a tough time?

In this article, “Important signs for the market; Banks’ results”, it is clear that banks are extremely important because they allow us to see way in advance if the market is in trouble.

In an article in TheStar, it was reported that Moody’s Investors Service had announced that property loans were the greatest threat to Malaysian banks.

This is despite Bank Negara Malaysia’s stress test finding in September which showed that the Malaysian financial sector would remain resilient.

Moody’s report also questioned the relevance of the Housing and Local Government Ministry’s plan to ease home financing requirements.

According to Starbiz, property experts warned that loosening lending requirements may backfire.

Moody’s said that for Malaysia, the residential segment accounted for over 30% of the domestic banking industry’s gross loans. Malaysia is not alone.

Moody’s also named Australia, New Zealand and South Korea as the top countries in the Asia-Pacific region where property loans posed the greatest threat to domestic banks.

The report also highlighted Malaysia’s residential property prices over the last eight years. In terms of price growth, Malaysia’s ranked fourth, just below Hong Kong, India and the Philippines.

Fortunately for us, property prices cooled down in the first six months of this year.

According to Moody’s vice-president and senior credit officer Eugene Tarzimanov, the banks’ creditworthiness will likely stay broadly stable next year due to still-healthy economic fundamentals and good credit buffers.

VERY IMPORTANT: The ratings agency remained positive that banks in the region would have sufficient buffers against growing risks.

However, the headline and the content of the article did not really match. After reading the whole article, it is clear that Malaysian banks are certainly not in trouble and their current results show that.

We must understand what Moody’s is saying and apply it to ourselves as well. Remember, it’s extremely important to have a sufficient buffer (savings) just in case we suffer from any sudden shock (losing our job) etc.

If you need a home, find one and buy it. If you do not need a home, evaluate a good one and buy it as an investment.

If you have NO money left at the end of every month, DO NOT buy any property even if somehow you qualify for certain schemes.

This article first appeared in

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.