Interest Rate Hike on Non-National Cars – Why?

Investors were doing the right thing by dumping financial stocks. At least they’ve realized the stupidity of keeping these stocks knowing the worst is not over.

Citigroup plunged 19 percent and Bank of America erased 24 percent with Dow Jones tumbled 3.6 percent or 289.60-points. There’re only $109.6 billion left in the $700 billion bailout fund and the U.S. Treasury Department is hopeful some institutions can pay back as much as $25 billion by next year. Before Bush left office his administration has committed $355.4 billion inclusive of $117 billion to American International Group Inc.’s (NYSE: AIG, stock), Citigroup Inc. (NYSE: C, stock), Bank of America (NYSE: BAC, stock), General Motors Corp. (NYSE: GM, stock) and Chrysler LLC.

The IMF (International Monetary Fund) estimates that global financial institutions could suffer more than $4 trillion in losses with the U.S. leading the way with a total of $2.7 trillion – double of what IMF predicted six months ago. In order to bolster capital reserves, the Obama administration seems to have little option but to convert some of the $200 billion in loans to ailing banks into common stock. And this is one of the reason why you should avoid banking stocks because the floating shares would be enlarged thus diluting the share price. So far country such as Malaysia has not shown any sign of severe recession, thanks to jobs well done in covering the actual situation.

There’s no doubt that the Malaysian financial institutions are better equipped after the 1997-1998 Asia Financial Crisis. However that doesn’t mean these banks are insulated from the effect of the current global crisis. The latest move by banks in raising interest rates for purchases on non-national (meaning non-Proton) cars could open the Pandora-box – the NPL (non performing loans) from car loans could be deadlier than expected. However, the immediate reaction and perception was the government is trying to help national car makers, Proton Holdings Berhad (KLSE: PROTON, stock-code 5304. Coincidently this strange measure of raising interest rate happens during the new Najib’s administration with his mentor Mahathir observing over his shoulder.