Mon, May 05, 2003 - Page 10 News List

Malaysian bankers pray for aid

PRECEDENCE With many analysts comparing the economic effect of SARS with that of Sept. 11, the nation is trying to repeat its recovery from the Asian financial crisis


Malaysian bankers are hoping the central bank will cut interest rates this month to spur lending and ease companies' debt burdens under an economic stimulus package to counter the twin blow of the severe acute respiratory syndrome (SARS) crisis and Iraq war.

Bank Negara last cut interest rates in the aftermath of the Sept. 11, 2001 terrorist attacks in the United States, and some analysts have portrayed the SARS crisis as Asia's equivalent to the Sept. 11 disaster.

"There's a lot of anxiety over the softening of the global economy. In the region, we have got to deal with SARS and the aftermath of the Iraq war," said Tan Teong Hean, chief executive of Southern Bank, one of Malaysia's 10 anchor banks.

"There is enough softness in the market to perhaps consider interest rates as a means by which to stimulate the economy."

It is tough for local banks to meet Bank Negara's target of 8 percent loans growth this year amid persisting uncertainties, Tan added.

Low interest rates were central to Malaysian's recovery after it plunged into its deepest recession in more than four decades in 1998, following the Asian financial crisis.

Bank Negara cut its key intervention rate from 9.5 percent to 5.5 percent in 1999, and slashed it further to the current 5.0 percent in September 2001.

Its intervention rate largely determines interbank lending rates, which in turn are the basis on which commercial banks calculate their base lending rates (BLR).

Bank Negara has described current rates as accommodating and said it would not fiddle with interest rates to grow the economy.

But there has been heightened talk in the banking community of a rate cut to mitigate the impact of SARS, which has devastated businesses here even if the actual health impact is not as severe as that in other countries.

Malaysia has cut its official economic growth forecast to 4.5 percent this year from 6.0 to 6.5 percent, but fears it could slide even lower.

The New Straits Times has quoted bankers as saying that the government was mulling a 50 basis points cut in the intervention rate, which could push BLR down to 6.0 percent from its current 6.4 percent.

Interbank rates could also fall by 10 to 20 basis points, making it cheaper for banks to borrow money from each other, it said.

The rate cut was likely to coincide with an economic stimulus package expected to be unveiled by Prime Minister Mahathir Mohamad in mid-May, it added.

Former banker Ramon Navaratnam said it was crucial for banks to lower lending rates quickly to help businesses grappling with severe cashflow problems.

Apart from alleviating their financial burden, Navaratnam said a rate cut would also raise confidence in the business community.

But Bank Negara must ensure that BLR is lowered accordingly and that banks do not ease their lending activities, he added.

Abdul Azim Zabidi, chairman of the national savings bank, also supported a rate cut to ease companies' debt burdens and said this would not hurt banks' profit margins.

He said banks were still being "ultra cautious" in issuing loans due to past bad experience and urged them to learn to mitigate risks.

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