BNM Should Abolish Rule 78!

The move to abolish the Rule of 78 method which calculates interest on personal financing is seen as positive. It aims to promote a healthier financial environment for borrowers. Rule 78 calculates a loan’s interest for the entire loan term based on the original principal. This also means that borrowers who pay off their loans earlier than the term stated do not get a better deal on interest savings. 

Bank Negara has proposed to abolish Rule 78 using an exposure draft while inviting feedback from the public. Under the new proposal, Bank Negara said it will prohibit financial services providers (FSP) from using Rule 78 in personal financial products. They may, however, offer fixed rates or a floating rate or where interest is charged on the remaining principal balance after deducting payments made by the borrower. 

Source: https://www.facebook.com/loanwiki/

It added that personal financing will only be granted when a borrower provides a verbal or written acceptance of the offer, and the FSP is satisfied that the borrower has the means to repay based on the affordability assessment. 

Bank Negara also said it will become an FSP’s responsibility to inform borrowers on how interest is calculated, including whether it is on a daily or monthly reducing balance basis. 

Additionally, the central bank said it invites feedback on the feasibility of reducing the existing maximum tenure of 10 years for personal financing products. The central bank acknowledged that in countries such as Australia and Singapore, the maximum tenure is up to seven years. 

Meanwhile, The Association of Banks in Malaysia (ABM) said they will continue working with member banks as well as with Bank Negara to effectively implement any changes based on the final policy document on personal financing to be issued in the future, while addressing any operational details along the way. 

This, Rule 78, has been an unfair measure to consumers. We have very weak consumer activism. And BNM moves slowly not to upset the banks. It is the same with insurers, BNM was slow to respond to consumers grouses on insurance premiums for medical cover. If you look at the documents that a borrower or guarantor has to execute for a loan, it is phenomenal. Then for retail/consumer loans, banks will not budge on terms. They will say, these are standard terms and blame it on BNM or ABM! Why can’t we have a more equitable lending environment especially where banks are making billions in profit at the expense of the consumer and bank worker?

 

Reference:

Move to abolish Rule 78 timely, Lydia Nathan, The Star, 18 December 2024

 

Can Proton Stand Alone?

Proton must first dominate the local automotive market without any form of tax protection before it can take the lead in making Malaysia an automotive export hub. Proton may have something to offer the global market from the tie-up with China car manufacturer Geely. But it has yet to prove itself in a free market. 

On differential excise taxes, Malaysia imposes high excise taxes on car manufacturers, ranging from 60–125% depending on the car size. Thus far Proton has been protected through higher taxes on imported cars.  This was from 1983. This protectionist policy has deterred foreign investors from investing in the country’s automobile market. Many car manufacturers shied away from setting up their plants in Malaysia. They went to Thailand and China instead. Now Vietnam. Proton should venture into electric vehicles as many countries are shifting from petrol engines to electric motors. 

Source: https://e

n.m.wikipedia.org

Industry experts say Proton and Perodua cannot keep up with global developments because of protectionist measures such as high tariffs, import duties of approximately 30% for cars from non-Asean countries, and the requirement for approved permits to import foreign cars. Trump is not alone! 

Proton needs to "graduate" from government protection and become more competitive in a free market. The government's protectionist policies have deterred foreign investors and prevented Malaysia from becoming an automotive export hub. And more to my heart made people “suffer” by subsidising  out-dated technology and output. 

Reference:

Let Proton stand alone before challenging the world, says expert, Shahrul Shahabudin, FMT, 16 May 2023

 

 

Do Malaysians Blame Political Influence of the Rich on Country’s Economic Inequality?

 Key points:

· A Pew Research survey found 86 per cent of Malaysians believe the rich’s political influence drives economic inequality, with 62 per cent thinking it affected the inequality “a great deal”.

 

· While the gap between rich and poor is the biggest concern in Malaysia, gender inequality is at the bottom of the list compared to racial or religious discrimination.

 

· The study revealed 58 per cent of Malaysians think their children will be financially worse off in the future, reflecting broader pessimism in the Asia-Pacific region.

 

A study by global pollster Pew Research Centre found that 62 per cent of Malaysians polled said that the political influence of the elites caused economic inequality “a great deal” here — a universal concern among most nations surveyed.

 

The report titled “Economic Inequality Seen as Major Challenge Around the World” also showed that a roughly similar proportion (58 per cent) of Malaysians felt that their children will be worse off financially in the future.

 

In the Asia-Pacific region, views are most negative in Australia, Japan and South Korea, where about two-thirds or more say children will be worse off than their parents. People in Malaysia and Sri Lanka are also pessimistic on this question, said the report. 

 

In the survey, 70 per cent of Malaysians said the gap between the rich and poor is a big problem in the country.

 

In response, 38 per cent of Malaysians said that the Malaysian economic system needs a complete reform, while 48 per cent called for major changes. Only 14 per cent said minor or no changes are needed.

 

There’s a clear relationship between people’s perceptions of economic inequality in their country and how they see the next generation’s financial future. 

 

Here are the proportions of Malaysians who feel that these issues below are a “big problem” here:

 

· Gap between rich and poor: 70 per cent

· Discrimination based on race or ethnicity: 63 per cent

· Unequal rights for men and women: 48 per cent

· Discrimination based on religion: 57 per cent

 

Additionally, here are the proportions of Malaysians who blamed these issues for economic inequality here:

· Political influence of the rich: 86 per cent

· Problem with the education system: 78 per cent

· Some people working harder: 77 per cent

· Different opportunities at birth: 73 per cent

· Robots and computers taking over: 68 per cent

· Racial or ethnic discrimination: 72 per cent

 

The findings were part of the Global Attitudes Survey done by Pew Research for 2024. In Malaysia, 1,005 adults were randomly polled over the phone between January 16 and March 10, 2024.

 

But will the Government take heed? No, because PMX and his team is focused on the Addendum, Gaza and other non-relevant issues instead of sorting-out meritocracy, needs-based policy, inequalities and cost of living!

 

Reference:

Study: Malaysians blame political influence of the rich on country’s economic inequality, six in 10 think their kids will be financially worse off, Malay Mail, 11 Jan 2025

Productivity and Prosperity

Investing in productivity growth can spur economic growth and support higher living standards. Productivity in the median economy jumped six fold in the past quarter century, but there is variation. Thirty emerging economies, home to 3.6 billion people, are in the “fast lane” of improvement. If they maintain their pace, they would converge to advanced-economy productivity levels within roughly the next quarter century. “Middle lane” economies would take more than a hundred years, while “slow lane” ones would never converge. At the same time, advanced-economy productivity has slowed by about one percentage point since the global financial crisis. Directed investment in areas such as digitization, automation, and artificial intelligence could fuel new waves of productivity growth in advanced and emerging economies, which is the best way to continue improving well-being and prosperity around the globe. This are the findings of the McKinsey Global Institute 2024 report.

 Micro-, small and medium-size enterprises, or MSMEs, are the lifeblood of the global economy. They account for two-thirds of business employment in advanced economies and almost four-fifths in emerging economies, as well as half of all value added. Improving MSME productivity to match top-quartile levels relative to large companies is equivalent to 5 percent of GDP in advanced economies and 10 percent in emerging economies.

 

Mckinsey used investment to take Europe’s pulse and found it low. Insufficient investment compromises Europe’s competitiveness, way of life, and standing in the world. US investment in intellectual property and equipment is double that of Europe per capita, and Europe’s pool of venture capital assets is just one-quarter of the US total. Today, returns on invested capital are four percentage points higher in the United States than in Europe. Reducing barriers to investment, such as energy costs, talent shortages, business and labour market regulation, and geo- and macroeconomic uncertainty, can give Europe a pulse on its competitiveness and help attract capital.

 

Malaysia’s investments on R& D currently is below 1% of GDP. There are threats by the Government to raise it to 2% but not effected. Advanced economies do 3-5% in R&D investments. So, we have a long way to go if we continue to focus on chicken ham, addendum and other sensitivities. 

Reference:

McKinsey Global Institute: 2024 in Charts, 12 December 2024

Throwing Some Light on Power Tariff Hike!

Tenaga Nasional Bhd’s (TNB) announcement of a 14.5% increase in the base tariff rate from 39.95 sen per kilowatt-hour (kWh) to 45.62 sen/kWh for Peninsular Malaysia for the regulatory period 2025-2027 (RP4) received public objections.

The power utility says the new rate will not impact some 85% of households but this segment only accounts for 20% of electricity demand. Eighty per cent of electricity generated in the country is used by industry and the rise in electricity costs is bound to have a domino effect on the whole supply chain. 

Mall operators, for instance, have stated their electricity bills have risen by some 50% since the ICPT (Imbalance Cost Pass-Through) tariff they pay surged from two sen/kWh to 16 sen/kWh in RP3. For a mall the size of half a million sq ft, this translates to an additional annual electricity cost of around RM5mil. Mall operators may recover that with higher rentals which in turn could be passed down to the end customer – the public. The case is similar for hotels and office towers, averaging 40% increase overall. 

Electricity tariff change add fuel to inflationary pressures. Potentially costlier goods and services may reduce consumer purchasing power, particularly for discretionary spending. As for the business sector, energy-intensive sectors such as steel, cement and heavy manufacturing will bear a significant financial burden. The higher production costs could reduce competitiveness in global markets unless mitigated by efficiency improvements. 

The final say on the new electricity tariff rates and tariff structure under RP4 is with the government, which is expected by mid-2025. For RP4, TNB's regulated business capex has been set at RM42.82 billion, while operating expenditure (opex) is set at RM20.78 billion. 

Compared with RP3, capex was RM20.55 billion while opex was set at RM17.69 billion. The regulatory rate of return, meanwhile, has been maintained at 7.3%, unchanged from RP3, it added. TNB noted that generation costs remain the largest component of the electricity tariff, with gas and coal continuing to be the primary fuel sources for electricity generation during this period. 

The ICPT mechanism was introduced to stabilise energy costs for TNB while encouraging efficient power generation. However, its impact has been deeply felt across the commercial sector. Earlier this year, S&P Global Ratings projected that TNB would recover RM6bil through the ICPT mechanism. Although this revenue is spread across various sectors, commercial properties bear a substantial portion of the cost. At the consumer level, this adjustment adds approximately RM176 per month to household expenses, contributing to rising prices for goods and services. 

With fuel subsidy rationalisation also to be announced after mid-year, Putrajaya has much to consider. 

TNB, which has a near-monopoly of the country’s electricity distribution, posted over a billion ringgit in profits in the second and third quarters of 2024. For nine months (2024), it was close to RM4 billion. Imagine RM5 billion a year at the expense of the public? 

But in the wake of the country’s aggressive 70% renewable energy (RE) mix target by 2050, must we prepare for higher tariffs with the new base rate acting as a new floor?

 

The new 45.62 sen/kWh base rate under RP4, as TNB explained recently, is driven by expectations of a 24% rise in coal price and 34% rise in LNG price.

 

 The two commodities accounted for about 90% of generation mix in the peninsula in the third quarter of 2024. And 70% of the base rate tariff is due to the fuel cost factor. 

The high demand from data centres and electrification of mobility with the growth of electric vehicles has meant utility companies worldwide have continued to rely on coal fired generation to meet demand. That supported coal prices despite the criticism about its impact on the climate. 

LNG is less carbon-intensive and growing in demand due to climate concerns and supply availability. TNB expects to replace its coal-based generation with it over time. Forecasts are for LNG price to remain supported underpinned by demand from growing markets like China and India with some price volatility due to geopolitical issues.

 On its part, TNB has been investing aggressively in renewable energy (RE) assets, including acquiring companies overseas and aims to be completely coal-free by 2050. 

There will be a surge in electricity demand, driven in part by the mushrooming of power-hungry data centres. TNB has seen demand in applications of up to 11 gigawatts or 11,000 megawatts. The power utility also has agreements to sell power to neighbours like Singapore and is allowing third-party access to the grid. The promotion of RE could come at higher tariff rates. 

 

 Around the region, Singapore is often cited as the model of how electricity reform should look like – from a vertically-integrated government-owned monopoly to one that is structured to facilitate wholesale and retail markets – and that can be implemented smoothly. Good legislation and a regulatory framework, as well as well-enforced market rules are key to success. 

Although electricity sector is slowly being liberalised. RE producers and their prospective customers have voiced their grouses on the high grid access fees under third-party access for green energy. 

It is time for a more liberalised market, like Singapore, and to stop the monopolistic tendencies of one giant hegemon. The real “loser” in all of this is the consumer. 

References:

Shedding light on power tariff hike, Bhupinder Singh / Gurmeet Kaur, Star Biz7, The Star, 4 Jan 2025 

The cost comfort, Andrew Teoh / YL Lum, Star Biz7, The Star, 8 Dec 2024 

TNB announces higher base electricity tariff for 2025-2027, raises capex to ensure reliable supply, Anis Hazim / theedgemalaysia.com, 26 Dec 2024

2025 Macroeconomic Outlook

With the return of President Donald Trump to office, a renewed focus on protectionist policies, such as broad-based tariff hikes, is anticipated. The implementation of these measures may take time amid complex global trade networks. This may provide economic actors enough headroom to adapt to the changing trade landscape. But with deportation of illegals in the U.S., the country’s economy will most likely slowdown.

Meanwhile, the eurozone and China face their own sets of challenges. Germany faced another year of contraction in 2024 due to weakness in their manufacturing sector. This stems from high energy prices and elevated financing costs. On the other hand, China faced the challenge of revitalising domestic demand amid renewed risks of higher tariffs from the US. Stimulus measures, including additional interest rate cuts, have been announced to address these challenges. Nevertheless, both the eurozone and China are expected to achieve only modest economic growth in 2025.

Source: https://en.wikipedia.org

 

Malaysia’s economy is set to grow at 4.5 - 5.0% in 2025. It will be driven by the accelerated implementation of projects outlined in various national development plans, adequate external demand, and broad-based sectoral expansion. Sectors such as construction and agriculture are likely to remain stable, given: i) accelerated progress in ongoing public infrastructure, ii) continued expansion of data centres, and iii) increased palm oil demand due to Indonesia’s upgraded mandates for biodiesel to 40% of fuel composition.

 

Private consumption, a major contributor to Malaysia’s 2024 economic growth, is projected to remain robust in 2025. This will be driven by the increment of civil servant salaries, increase in minimum wage to RM1700 from RM1500, as well as withdrawals from Employees Provident Fund Account 3. Additionally, private consumption will benefit from an improving employment rate and rising private sector wages, as observed in 3Q2024.

 

Globally, inflation will remain a key indicator to monitor in 2025. Despite the US Federal Reserve's interest rate policy, inflation has struggled to reach its preferred 2% target throughout 2024. In the eurozone, inflation briefly fell below the 2.0% target in September but inched higher thereafter due to rising services costs. This will shape the respective central bank’s monetary policy.

 

In Malaysia, inflationary pressures are anticipated with measures like rationalisation of subsidies and widened scope of the Sales and Services Tax. Furthermore, wage hikes could drive domestic demand and push prices upward. Headline inflation may average 2.6 – 3.5% in 2025 (2024F: 1.9%) (upper end is the writer’s own assessment). Therefore, contained inflation and strong GDP growth of around 5.0% suggest flexibility for Malaysia’s central bank to keep the Overnight Policy Rate unchanged at 3% in 2025. In consideration of Malaysia’s economic growth and stable interest rate outlook, USD-MYR may average around 4.40-4.50 in 2025 (range is more of the blog writer’s estimate), as the Fed’s anticipated moderation of its interest rate cuts will likely limit the extent of the ringgit’s appreciation.

 

As mentioned previously, we need to remain agile, creative and flexible to overcome a slew of measures anticipated under Trumponomics 2.0. The key problems we face as usual are not addressed and are treated as structural problems – more inclusivity; focused needs-based policies; and liberalisation of existing regulatory framework. To have dynamic growth we must face the ‘elephant in the room”. Structural reforms please! But PMX has thus far not shown the guts to do it!

 

Reference:

2025 Macroeconomics Outlook: Growth to sustain amid monetary easing protectionism, MARC Ratings Berhad, 9 January 2025

Technology and Markets of the Future

McKinsey Global Institute has identified the next big arenas of competition that will drive economic growth in the new era. There are 18 arenas, unique categories of industries distinguished by high growth and dynamism, could reshape the global economy, generating $29 trillion to $48 trillion in revenues by 2040. These arenas, which include AI software and services, cybersecurity, air mobility, obesity drugs, and industrial and consumer biotechnology, could increase as a share of global GDP from 4 percent today to 10 to 16 percent by 2040. Companies in these arenas exhibit three characteristics that escalate competition: cutting-edge technologies, large investments, and large, growing markets. In combination, these characteristics lead to market share gains and a product quality edge that further set these arenas apart. 

The above areas provide us a landscape for Malaysia to chart its focus. They also suggest where skill sets need to be developed. That means Education Ministry must revise and upgrade teachers, curriculum and facilities. The “old song” of race and language will not be relevant whether we like it or not.

Reference:

McKinsey Global Institute: 2024 in Charts, 12 December 2024

Is Anwar’s Approval Rating on the Rise?

 Key Points:

· Prime Minister Anwar Ibrahim’s approval rating has risen to 54 percent in a Merdeka Center survey. This is up from 50 percent in 2023, with voters citing efforts to improve Malaysia’s image, attract investment, and streamline the civil service.

 

· Economic concerns dominate sentiments, with 53 percent feeling Malaysia is on the wrong track, driven by the cost of living and subsidy cut anxieties.

 

· The survey highlights the economy as voters’ top issue, though concerns have eased slightly since 2023.

 

 

About 39 percent of respondents gave Anwar the thumbs down, while eight percent were neutral about his performance.

 

In comparison, his approval rating was 68 percent in the honeymoon period after he was sworn into office in 2022. But fell to 43 percent in June 2024, before rising to the current level.

 

During the corresponding period in November last year, a similar Merdeka Center survey gave Anwar an approval rating of 50 percent.

 

Despite the improved approval rating, however, 53 percent of respondents feel Malaysia is going in the wrong direction, compared to 39 percent who feel optimistic about the country’s future. Whether the sentiment is positive or negative, respondents overwhelmingly cited economic issues as the reason.

 

 

The reasons for optimism include favourable economic conditions (11.7 percent), improving economy (10.1 percent), good national or state administration (8.7 percent), and political stability (5.8 percent).

 

Meanwhile, those who felt the country was going in the wrong direction cited unfavourable economic conditions (26.5 percent), high cost of living (16.6 percent), poor administration (6.9 percent), and political instability (6.7 percent).

 

 

 “The tight spread between positives and negatives is largely driven by persistent concerns about cost of living pressures and some anxiety over subsidy cuts slated to take place in the future.

“As in the past, voter sentiments remain focused on the economy, as largely driven by their concerns over the economy, where 65 percent state as the ‘number one problem facing people in the country today’, according to Merdeka Center.

 

The survey was conducted via telephone across Malaysia during the survey period, with respondents aged 18 and above selected via random stratified sampling along ethnic, gender, age, and state lines. The margin of error is estimated at ±2.82 percent.

 

 The one key area PMX has failed thus far is cost of living. This is definitely on the rise in 2025 with subsidy cuts, wage increases, and electricity tariffs projected to be hiked. What can he do? Several things… defer, substitute, dissuade! What do I mean? I will write on it once I am the special economic adviser!

 

Reference:

Anwar’s approval rating rises slightly to 54pst – survey, Malaysiakini, 23 December 2024

Will Car Prices Go Up by 8% to 20% in 2025?

We may see significant price increases for locally assembled (CKD) cars in Malaysia. In 2019, the Finance Ministry under the then Pakatan Harapan government prepared the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, which was gazetted on the last day of that year. The regulations stipulated a new methodology of calculating a CKD vehicle’s open market value (OMV), which influences how much tax is to be paid and therefore, its selling price. OMV is defined as the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it.

The then-new regulations set down that in calculating OMV, one must take into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle, but also of its sale. It was this “sale” clause that got industry players up in arms, because it involved areas such as engineering, development work, artwork, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright). Think of it as ‘factory costs’ plus ‘office costs’.

 

 Source: https://en.wikipedia.org

 The regulations were supposed to come into force in 2020, but 22 days into the COVID year, the Malaysian Automotive Association (MAA) announced that the finance ministry had deferred implementation to 2021. MAA added that the new regulations could lead to CKD car prices going up by as much as 20%. 

By end-2020 it was deferred again, and MAA appealed to the government in 2022 for continued deferment, which was successful – a two-year deferment was granted, until December 31, 2024. No official announcement of yet another deferment has been made. So will every company that assembles cars in Malaysia must, by law, comply? 

Besides the planning, forecasting and operational nightmares endured by carmakers as a result of this uncertainty, there’s the regular consumer, who may have to by mid-2025 and pay up to 20% more for a CKD car. Indeed, analysts foresee lower vehicle sales in 2025 due in part to the OMV revisions and targeted RON 95 petrol subsidies. 

So, does the Government want additional tax collection in the short-term or control inflationary pressures and long run prospects in the automotive sector? 

Reference:

OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?, Jonathan James Tan, https://paultan.org, 19 December 2024