Financial Stability: Case Study 15 May 2015
Financial Stability:
Financial Surveillance and Macro Prudential Policy
Case Study 15 May 2015 Siti Hanifah Borhan Nordin Bank Negara Malaysia ([email protected])
1
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
General information (1 of 2) • Small open emerging economy
• Population of 40 million with GDP per capita of USD5K • Steady GDP growth averaging at 5% post-GFC (pre-GFC, 7%) – Demand-side: Domestic private consumption as main GDP contributor – Supply-side: Led mainly by manufacturing (E&E) and construction sectors (property market); accounts for 40% and 25% of employment respectively Manufacturing firms are mainly foreign-owned companies while construction key players involve mainly in both civil engineering and residential property market
• Low unemployment and stable inflation rate • Interest rate is relatively slightly higher compared to peers • Received influx of capital inflows post GFC – However, capital flows became volatile as advanced economies normalise their interest rates 2
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland General information (2 of 2)
• Stable financial system with ample liquidity (substantial growth post-GFC) and resilient financial institutions – Dominated by two banks one local (retail) and one foreign bank (corporate)
• Low capital market penetration but gaining traction • Household loans accounts for half of total loans
• About a-third of household debt acquired from informal sector • Substantial foreign currency debt amongst manufacturing and construction firms leveraging on lower external interest rate 3
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
Key Financial Soundness Indicators: Banking System As at end 2010
2011
2012
2013
2014
% (or otherwise stated) Banking System Total Capital Ratio
13.5
14.0
14.1
14.9
15.2
Tier 1 Capital Ratio
12.5
12.9
13.2
13.5
13.3
Common Equity Tier 1 Capital Ratio
12.1
12.3
12.5
12.6
12.6
Return on Assets
1.5
1.6
1.6
1.5
1.5
Return on Equity
16.6
17.4
17.4
15.9
15.2
Liquid Assets to Total Assets
15.6
16.0
17.0
11.6
13.1
Liquid Assets to Short-term Liabilities
48.1
45.4
42.5
36.5
42.6
Net Impaired Loans Ratio
2.3
1.8
1.4
1.3
1.2
Capital Charge on Interest Rate Risk in the Trading Book to Capital Base
2.0
1.7
1.7
1.5
1.5
Net Open Position in FCY to Capital Base
8.5
6.7
6.1
5.7
4.9
Equity Holdings to Capital Base
1.2
0.9
0.6
0.8
1.3
4
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
Key Financial Soundness Indicators: Household Sector 2010 Household (HH) Sector HH Debt (RM billion) Of which:
As at end 2011 2012 2013 % (or otherwise stated)
2014
594.2
674.2
767.6
855.9
960.0
Purpose: Purchase of residential property
249.6
289.9
337.7
385.2
412.8
Purpose: Hire Purchase Purpose: Personal Financing Purpose: Credit Card Purpose: Others
136.7 89.1 71.3 47.5
148.3 94.4 80.9 60.7
168.9 107.5 99.8 53.7
196.9 128.4 128.4 17.1
211.2 153.6 163.2 19.2
1,399.5
1,519.6
1,712.3
1,902.6
2,012.6
74.5
76.2
81.5
86.7
87.9
HH Financial Assets to Total HH Debt Ratio
235.5
225.4
223.1
222.3
214.0
HH Liquid Financial Assets to Total HH Debt Ratio
166.9
159.2
159.3
159.4
150.4
44.1
45.2
43.9
42.4
40.1
2.3
1.8
1.5
1.3
1.2
HH Financial Asset (RM billion) HH Debt to GDP Ratio
Debt Repayment Ratio Impaired Loans Ratio of HH Sector
5
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Household Sector
Household Debt by Purpose (Annual Growth)
Household Debt by Purpose (Contribution to Growth
%yoy
ppt
30
20
25
15
20
10 15
5
10
0
5
-5
0 2010 2011 HH Debt
2012
2013
2010
2014
2011
2012
2013
2014
Purpose: Others Purpose: Credit Card Purpose: Personal Financing Purpose: Hire Purchase Purpose: Purchase of residential property
Purpose: Purchase of residential property Purpose: Hire Purchase
Purpose: Personal Financing Purpose: Credit Card
6
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Household Sector
Household Debt by Purpose (% share)
Household Debt by Purpose (Contribution to Growth %yoy 30
Others 2% Credit Card 17% Personal Financing 16%
Purchase of Residential Property 43% 22%
Hire Purchase 22%
%yoy 7
25
6
20
5
15
4
10
3
5
2 2010
2011 2012 HH Debt
2013
2014
Personal financing & Credit Card GDP (RHS) 7
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Residential property and income Growth of House Price
Growth of income
%yoy
14 12
Year
GDP per capita (%yoy)
2009
5.6
2010
5.7
2011
0.3
2012
-4.3
2013
-6.8
2014
2.8
10 8
±3 std deviation
6 4 2
3Q 14
4Q 13
1Q 13
2Q 12
3Q 11
4Q 10
1Q 10
2Q 09
3Q 08
4Q 07
1Q 07
2Q 06
3Q 05
0
House Price Index
8
Financial Surveillance and Macro Prudential Policy 15 May 2015
Case study for group discussion and presentation • Identify and assess risks to financial stability • Ascertain risk transmission channels • Determine appropriate policy intervention (if required) • Develop communication strategy
9
Financial Surveillance and Macro Prudential Policy 15 May 2015
Key considerations for effective policy design and deployment • Current risks and emerging threats to financial stability • Interconnectedness – Domestic or external? Spillover?
• Policy options and objectives • Consideration on other policies (monetary / fiscal / structural / supervisory – Complement or reinforce or conflicting?
• Enforceability – Power? Combination? Macro vs micro? Other authorities?
• Unintended consequences
• Communication strategy 10
Financial Surveillance and Macro Prudential Policy 15 May 2015
Financial Surveillance and Macro Prudential Policy
Case Study 15 May 2015 Siti Hanifah Borhan Nordin Bank Negara Malaysia ([email protected])
1
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
General information (1 of 2) • Small open emerging economy
• Population of 40 million with GDP per capita of USD5K • Steady GDP growth averaging at 5% post-GFC (pre-GFC, 7%) – Demand-side: Domestic private consumption as main GDP contributor – Supply-side: Led mainly by manufacturing (E&E) and construction sectors (property market); accounts for 40% and 25% of employment respectively Manufacturing firms are mainly foreign-owned companies while construction key players involve mainly in both civil engineering and residential property market
• Low unemployment and stable inflation rate • Interest rate is relatively slightly higher compared to peers • Received influx of capital inflows post GFC – However, capital flows became volatile as advanced economies normalise their interest rates 2
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland General information (2 of 2)
• Stable financial system with ample liquidity (substantial growth post-GFC) and resilient financial institutions – Dominated by two banks one local (retail) and one foreign bank (corporate)
• Low capital market penetration but gaining traction • Household loans accounts for half of total loans
• About a-third of household debt acquired from informal sector • Substantial foreign currency debt amongst manufacturing and construction firms leveraging on lower external interest rate 3
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
Key Financial Soundness Indicators: Banking System As at end 2010
2011
2012
2013
2014
% (or otherwise stated) Banking System Total Capital Ratio
13.5
14.0
14.1
14.9
15.2
Tier 1 Capital Ratio
12.5
12.9
13.2
13.5
13.3
Common Equity Tier 1 Capital Ratio
12.1
12.3
12.5
12.6
12.6
Return on Assets
1.5
1.6
1.6
1.5
1.5
Return on Equity
16.6
17.4
17.4
15.9
15.2
Liquid Assets to Total Assets
15.6
16.0
17.0
11.6
13.1
Liquid Assets to Short-term Liabilities
48.1
45.4
42.5
36.5
42.6
Net Impaired Loans Ratio
2.3
1.8
1.4
1.3
1.2
Capital Charge on Interest Rate Risk in the Trading Book to Capital Base
2.0
1.7
1.7
1.5
1.5
Net Open Position in FCY to Capital Base
8.5
6.7
6.1
5.7
4.9
Equity Holdings to Capital Base
1.2
0.9
0.6
0.8
1.3
4
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland
Key Financial Soundness Indicators: Household Sector 2010 Household (HH) Sector HH Debt (RM billion) Of which:
As at end 2011 2012 2013 % (or otherwise stated)
2014
594.2
674.2
767.6
855.9
960.0
Purpose: Purchase of residential property
249.6
289.9
337.7
385.2
412.8
Purpose: Hire Purchase Purpose: Personal Financing Purpose: Credit Card Purpose: Others
136.7 89.1 71.3 47.5
148.3 94.4 80.9 60.7
168.9 107.5 99.8 53.7
196.9 128.4 128.4 17.1
211.2 153.6 163.2 19.2
1,399.5
1,519.6
1,712.3
1,902.6
2,012.6
74.5
76.2
81.5
86.7
87.9
HH Financial Assets to Total HH Debt Ratio
235.5
225.4
223.1
222.3
214.0
HH Liquid Financial Assets to Total HH Debt Ratio
166.9
159.2
159.3
159.4
150.4
44.1
45.2
43.9
42.4
40.1
2.3
1.8
1.5
1.3
1.2
HH Financial Asset (RM billion) HH Debt to GDP Ratio
Debt Repayment Ratio Impaired Loans Ratio of HH Sector
5
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Household Sector
Household Debt by Purpose (Annual Growth)
Household Debt by Purpose (Contribution to Growth
%yoy
ppt
30
20
25
15
20
10 15
5
10
0
5
-5
0 2010 2011 HH Debt
2012
2013
2010
2014
2011
2012
2013
2014
Purpose: Others Purpose: Credit Card Purpose: Personal Financing Purpose: Hire Purchase Purpose: Purchase of residential property
Purpose: Purchase of residential property Purpose: Hire Purchase
Purpose: Personal Financing Purpose: Credit Card
6
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Household Sector
Household Debt by Purpose (% share)
Household Debt by Purpose (Contribution to Growth %yoy 30
Others 2% Credit Card 17% Personal Financing 16%
Purchase of Residential Property 43% 22%
Hire Purchase 22%
%yoy 7
25
6
20
5
15
4
10
3
5
2 2010
2011 2012 HH Debt
2013
2014
Personal financing & Credit Card GDP (RHS) 7
Financial Surveillance and Macro Prudential Policy 15 May 2015
Country Case Study: Debtland Residential property and income Growth of House Price
Growth of income
%yoy
14 12
Year
GDP per capita (%yoy)
2009
5.6
2010
5.7
2011
0.3
2012
-4.3
2013
-6.8
2014
2.8
10 8
±3 std deviation
6 4 2
3Q 14
4Q 13
1Q 13
2Q 12
3Q 11
4Q 10
1Q 10
2Q 09
3Q 08
4Q 07
1Q 07
2Q 06
3Q 05
0
House Price Index
8
Financial Surveillance and Macro Prudential Policy 15 May 2015
Case study for group discussion and presentation • Identify and assess risks to financial stability • Ascertain risk transmission channels • Determine appropriate policy intervention (if required) • Develop communication strategy
9
Financial Surveillance and Macro Prudential Policy 15 May 2015
Key considerations for effective policy design and deployment • Current risks and emerging threats to financial stability • Interconnectedness – Domestic or external? Spillover?
• Policy options and objectives • Consideration on other policies (monetary / fiscal / structural / supervisory – Complement or reinforce or conflicting?
• Enforceability – Power? Combination? Macro vs micro? Other authorities?
• Unintended consequences
• Communication strategy 10
Financial Surveillance and Macro Prudential Policy 15 May 2015
