‘Country not heading towards crisis’

Governor of the Bank Negara Malaysia Zeti Akhtar Aziz participates in a discussion on the global economy during the World Bank/IMF Annual Meeting

(NST) – Acknowledging that “we can’t always have good times”, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said the country must adjust to the slowing global economy, but stressed that the nation is not facing a financial crisis.

In an exclusive interview with the New Straits Times, she said the economy was now on a much stronger footing than during the 1997/98 Asian crisis, and the country was entering the global slowdown from a point of strength, not weakness.

Addressing some of the concerns of the man on the street, the veteran central bank chief said the ringgit’s sharp fall against the United States dollar was because of three major factors, including “domestic issues”.

But, she said some 120 other currencies also dropped against the dollar, not just the ringgit. “Most of it is beyond our control.

This is evident from the fact that the dollar has strengthened against more than 120 currencies.” She said some US$28 billion (RM118 billion) had flowed out of the country since September last year, but added that before this, US$60 billion in foreign funds had flowed into the country between 2009 and last year.

Fundamentally, the Malaysian economy remained good, she said.

“Our country is not heading towards a crisis.

“Why do we say our fundamentals are strong?

“We have a surplus in our current account, a low level of unemployment, we have a high level of savings and our level of foreign debt is relatively low.”

So, there is no doom and gloom? “No, it isn’t doom and gloom, but we are not portraying a picture that everything is fine.

“We are picturing a very challenging period that we have been able to manage so far.

“And therefore, the private sector and consumers must also learn to manage this kind of difficult and challenging environment.

“If we had not done all the things we did to strengthen our banking sector, to develop our financial markets and to diversify our economy, we would have been so much worse now.

“We have not seen a widespread closure of businesses. “Businesses may be scaling back; this is the reality of the environment.

“We should accept these realities and not be in the phase of denial. “But to say that we don’t have strong fundamentals is also not correct.

“We have strong fundamentals, and these are the fundamentals that will allow us to ride out this rough period and bounce back to a better economic performance.”

She said the nation, businesses and people must make adjustments. “Everyone has to adjust. Individuals need to learn how to conserve and economise.

“If they are facing financial stress, then they need to take advantage of the facilities we have.”

This means people may have to forego their overseas holidays or educate their children in local universities or foreign campuses in Malaysia.

Zeti said the country’s household debts, at 87 per cent of gross domestic product, had stabilised, and non-performing loans remained low at 1.5 per cent.

Non-collateral debt has moderated, while the growth of personal loans and credit cards is now growing at between three and four per cent from more than 15 per cent.

Zeti said lending rules for housing and other loans were necessary.

“Bank Negara has guidelines that we refer to as responsible lending guidelines, which have a requirement for institutions to make an affordability assessment.

“This means that the borrower must demonstrate that they have the capability to service the loan because we don’t want the house to be repossessed when they fail, or for it to result in bankruptcies.

“The global financial crisis started in the sub-prime market, giving loans to people who later could not service and repay the loans, and it eventually brought the whole financial system in the US and other developed countries down.

“If we are not careful, the future of our economy would be affected. “Such prudential guidelines are to sustain the performance of our economy,” she said.

Zeti said the loan rejection rate was at below 20 per cent and the approval rate, about 74 per cent. Referring to the ringgit, she stressed that Malaysia was not alone.

Commodity and oil producers, like Malaysia, have depreciated much more than other non-oil and commodity countries. “Then, in Malaysia’s case, we have some domestic issues that have affected sentiment and confidence.

“These are the things that need to be resolved. “It would then contribute to a recovery in our currency.” She said Malaysia took 18 months to recover from the devastating 1997/98 financial crisis.

“Our track record has shown us that every time we have been set back, time and again, we have been able to bounce back. “It is more than once. We bounced back, and we bounced back quickly.”