BizNews in brief
What does RCE’s numbers say?
THERE seems to be more lending to civil servants going by the increasing profits of companies such as RCE Capital Bhd, a non-bank lender that this week announced a 85.7% rise in net profit to RM17.53mil in the first quarter ended June 30, 2016.
Its revenue, meanwhile, rose 38.54% to RM51.94mil.
RCE is a major non-financial institution in the niche credit cooperative market. It provides unsecured loans to civil servants through strategic tie-ups with cooperatives and these loans are repaid via a salary deduction scheme.
Investors embraced the news positively as reflected in the run-up of the stock’s share price following the results.
But amid this, a question that crops up is what is the state of the indebtedness of civil servants under loans given to them via the automatic salary deduction scheme under Angkatan Koperasi Kebangsaan Malaysia Bhd (Angkasa). This is the national umbrella body for cooperatives whose members are made up of civil servants by virture of them being the bulk of cooperative members.
Concern that civil servants are overly in debt have caught the eye of many as lending to civil servants had shown a marked rise in the last few years. To rein in household debt, the central bank has implemented reforms and macro measures, particularly among the lower income group.
According to the latest statistics, Malaysia’s household debt-to-gross domestic product ratio stood at 89.1% as of 2015 from 86.8% previously. At 89.1%, Malaysia has one of the highest household debts in the region.
Despite the elevated ratio, the central bank said the ability to service debt remains sound and there was now higher asset quality taken up from the household debt.
Still in the wake of the wake of a slowing economy, the trend is something the Government needs to keep an eye on given the vulnerability of low-income households to economic shocks.
Importance of talent
ATTRACTING the best talent into your shores has proven the world over to be a successful model.
Global hubs of London, New York, Hong Kong and Singapore to name a few, would not be where they are today, if they didn’t roll out the red carpet for the best brains from the rest of the world. There is hardly any place today for policies that seek to limit the entry of specialised foreign workers when such skill sets don’t exist locally.
This is why the decision by the Sarawak state to impose a moratorium on new work permits for employees of Petroliam Nasional Bhd in the state, is puzzling. The moratorium is imposed on the hiring of new non-Sarawakians by Petronas. It has been reported that the move by the state came about following complaints from senior Sarawakian Petronas officials that had been retrenched by the oil giant.
Petronas in turn has said that this possibly come about as a result of a misconception of its recent group-wide restructuring and holds that it remains committed to its investment in Sarawak and that overall its workforce requirement will continue to grow there. Whatever the case, the fact remains that oil and gas is a highly specialised field.
Limiting the hiring of specialised workers, based on their nationality, can set a dangerous precedent and shoo away talent that is much needed by the country. Such rules could also interfere with the process that oil and gas companies are going through to fix themselves following the disastrous year they have been through following the oil price collapse last June.
Dealing with slower growth
The official projection is that the Malaysian economy will grow between 4% and 4.5% this year. Yes, the growth rate is positive but for a country with a population that is growing strongly, that number in reality is a worry.
The economy grew by 4% in the second quarter and the 25-basis point rate cut in interest rates will help support economic growth in the next 2 quarters for the year.
Looking at the yearly economic growth rates over the past 50 years, a growth of between 4% and 4.5% is the lowest, notwithstanding the years when the Malaysian economy entered a recession.
Even in the years preceding and after a crisis, the economic growth rate has never been lower than the official projection.
The reality is that on the ground, the current economy is sluggish and there are headwind worries over the horizon that will put even more pressure on growth.
Malaysia is not in a recession but there is a recession in terms of confidence. Car sales are lower and so are property transactions. Many companies are not hiring the numbers required to absorb the oncoming number of people who are able to join the current workforce.
The question is what is there to do?
There is no real answer but the idea is that preparation for the future needs to be in place. The important thing to note is that in search of short-term boosts, Malaysia must not sacrifice long-term welfare.
Given that the external sector is experiencing weakness, Malaysia cannot fight against that. Household debt is already high and to allow indebtedness to fuel growth would be detrimental to long-term prospects.
One important thing to note is that the economy is a cycle. There are ups and downs but the long-term trend has always been up. Policies should be crafted to ensure that remains.