“AM I overwhelmed by this? No, because I have always known that central banking is always an unfinished business,” said Tan Sri Dr Zeti Akhtar Aziz, wrapping up a lengthy interview amid the current turbulence in the world economy.
“We can never sit back… there’s always a new challenge on the horizon.” In the first part of an exclusive session with the New Straits Times in her office on the 19th floor overlooking a hazy Kuala Lumpur city centre, the Bank Negara Malaysia governor addressed public fears and misgivings about the country’s financial health and economy.
“It isn’t doom and gloom, but we are not portraying a picture that everything is fine,” said Zeti, who has been at the helm of the central bank since 2000, as the nation battled the 1997/98 Asian financial crisis.
She also spoke on the weakening ringgit and how the nation, companies and people needed to make painful adjustments to tide over the challenging times.
“We can’t always have good times,” Zeti told A Jalil Hamid, Mustapha Kamil and Rupa Damodaran.
Here are the excerpts: Question: For the man on the street, are we in for harder times? Answer: No, not exactly, but the challenging conditions are likely to persist for some time.
We are not heading towards a crisis in our country, and the reason why I can confidently say this is because we have had growth of about five per cent for several years now.
We also have a strong financial system, and a high level of reserves.
Our fundamentals are strong. 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.
Even if they begin to soften, like our surplus on the balance of payments current account may have narrowed, but it is still a surplus, and that is important.
In the capital account, we still have foreign direct investments flowing into our country. We also have a more developed financial system, in particular, more developed financial markets, which we didn’t have before.
So, the effects of all this volatility are spread out throughout the financial system, rather than just being concentrated on the banking sector.
The banks are also larger and less vulnerable.
They are well capitalised. We did all that to prepare ourselves so that we can absorb and better manage shocks to our economy.
Question: So, there is no doom and gloom? People are saying the fourth quarter will be very bad and the ringgit has dropped so much and, probably, we are bracing for imported inflation.
There is a supermarket in Petaling Jaya that has put up a sign that reads, ‘we have to raise prices because of the ringgit’.
So, people think it is not as rosy as what the government would like to portray.Answer: No, it isn’t doom and gloom, but we are not portraying a picture that everything is fine.
We are experiencing a highly challenging period that we have so far been able to manage.
And therefore, the private sector and consumers must also learn to manage this kind of 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.
If exports dropped, commodities’ prices dropped and global demands dropped, we would have been so much worse off. We would have been devastated. But, we restructured our economy so that we have domestic demand — consumption demand and investment demand, which have become important drivers of our economy.
That is why we have been able to have between five and six per cent of growth during this period.
Now, the growth may moderate to the four to five per cent range. But, it is still growth and we still have a relatively low level of unemployment.
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.
Question: Governor, when is that going to happen? Answer: It will happen when the issues facing us are resolved.
Firstly, there is uncertainty over the policy direction in the major economies, in particular, the United States. This uncertainty is creating volatility in the financial markets.
For example, there has to be an exit from the policies that were being implemented during the global financial crisis.
That is an eventuality that has to be accepted. When there is that certainty on the timing and the path of this, I believe it will contribute towards the stabilising of global financial markets.
Then, there is the issue of the drop in energy (oil) and commodities’ prices. There are uncertainties with respect to when it will stabilise.
The increased supply has lowered energy prices and demand has also slowed down, resulting in commodities’ prices to also drop.
For countries like Malaysia, which is a net exporter of petroleum and a producer of commodities, we are affected more than others.
Then, we have some domestic issues as well. So as long as these domestic issues are not resolved, it generates uncertainties.
These uncertainties generate the kind of volatility that you’ve seen. This will result in some people just waiting and seeing before they undertake their investments and so on.
Question: To ordinary consumers, what is your advice in this period of uncertainty? Answer: They have to recognise that this period is challenging for everyone, for the country, individuals and businesses.
This is a period which I describe as a period of adjustment. Everyone has to adjust. Malaysians need to recognise that this is a period of adjustment.
To a significant extent, the global developments that are affecting us are beyond our control.
The role of the central bank has been to build resilience so that the country can cope during such times.
And, this is what we did. And then, to also make sure we have orderly market conditions and to ensure that we have a conducive environment for growth.
This is what the central bank is doing. For individuals, they need to learn how to conserve and economise, and they have to replan how they should live in this kind of environment.
If they are facing financial stress, then they need to take advantage of the facilities we have. As you know, we have Agensi Kaunseling dan Pengurusan Kredit.
Banks also have advisory services for consumers and small- and medium-sized enterprises. What they also have to know is that while they have access to financing, they need to be able to demonstrate that they have the ability to repay.
These are the things that they must do, and learn how to better plan and manage their finances. Instead of going abroad, they should explore the opportunities available in our own country.
Domestic tourism has many exciting offerings.
Or, explore educating their children here in Malaysia. There are many good universities here. These are things they have to examine.
They have to change their way of life. For now, it cannot be as it was before. We have always advised businesses that it was not always going to be good times.
They cannot repeat the huge profits they made during the good times. And, during the good times, they have to build up buffers to allow them to ride out the difficult times. So, it is all about recognising that this is what you must do to build up your own resilience.
It is like a person: if you are in good health and have looked after yourself well by investing in your health, you will be less vulnerable to falling sick.
And, even if you fall ill, a person who has invested in his health has a better chance of recovering quickly.
Question: In this kind of situation, many people worry about inflation and price increases, especially after the implementation of the Goods and Services Tax (GST), and now with the ringgit down, that means they have to pay more.
Individual purchasing power has dropped and profit in the companies they work for is also dropping.
They are worried about being retrenched and so on… what is your comment on that?
Answer: These are the things that risk happening during such a period.
But most companies have invested in their own workforce so they are not likely to rush into retrenchment exercises. Even during the Asian financial crisis, they scaled down operations, requiring people to work fewer hours, and tried to keep their staff for as long as possible as they had already invested in training and developing them.
But for those who close down their businesses or undertake rationalisation to become more efficient, then, they will let some of their staff go.
I believe some of them have done so already. This is the time when opportunity has to be given for retraining so that people can be retrained or trained in how to start their own businesses.
This was done in the early 2000s when there was consolidation and mergers in the banking sector. More than 4,000 people had to leave the banking sector.
Did it lead to devastation? It didn’t; we recovered within 1½ years from that crisis and people found other things to do.
Either they started their own businesses or were retrained and went into other lines of business. So, the way I see the role of the government is to look at how they can ensure that growth is sustained during this kind of period.
While we are enduring all this volatility, our focus should be on growth. Question: What about the levels of household debt and non-performing loans (NPL)?
Answer: Household debt has stabilised and the NPL is low at 1.5 per cent.
Question: How about non-collateral debts?Answer: Non-collateral debt has moderated. But not all non-collateralised debt is bad.
An assessment of further income stream is also important. But loans, such as personal loans and credit cards, are now growing at three to four per cent moderated from more than 15 per cent, previously.
Growth moderated when we implemented policies to rein in such excessive borrowing, including from non-banking financial institutions.
So, household debt is less of a concern now because we took measures gradually over about three to four years.
When we first increased it, the market told us “it is a light touch, that it was not going to have an impact”, but that was the point.
We did not want the move to be so drastic that it might lead to a major slowdown.
We are seeing the results now that it has led to moderation, without causing a significant slowdown in consumption. Question: The ringgit has dropped so much.
When will the slide stop?
Answer: More than 120 currencies have depreciated against the US dollar. So, we are not alone in experiencing a depreciation.
And when we examined those oil and commodity producers, their currencies depreciated much more than the other group that depreciated against the US dollar.
Commodity and oil producers have depreciated much more. In Malaysia’s case, some domestic issues have affected sentiment and confidence.
These are things that need to be resolved. It would then contribute to a recovery in our currency.
Question: The Real Estate and Housing Developers’ Association Malaysia (Rehda) has stated that property sales have dropped because of BNM’s stricter financing rules.
Is it a fair statement?
Answer: No. Bank Negara has introduced responsible lending guidelines which require financial institutions to make an affordability assessment.
That 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 to pay or for it to result in bankruptcies.
Even if you are a sole proprietor and have a steady income, banks will look at your financial statements for indication of a steady inflow of income, in addition to other aspects, such as your combined income with your spouse or child and so on.
A lot of flexibilities have been given. Some banks may have taken it too far, but that is not the intention of our responsible lending guidelines.
We continually engage with banks and are seeing healthy credit growth. We are also looking at approval and rejection rates.
We have the BNMLINK (Bank Negara Malaysia Laman Informasi Nasihat dan Khidmat) for those who have difficulties getting a loan to seek advice or if a bank has treated them unfairly, despite them having demonstrated their affordability.
They have to be more aggressive and come forward so that we can look into the situation. We also have advisory services throughout the country.
They can also engage them by calling hotlines and sending emails and so on. The banks are also required to deal with complaints as well.
But it is important to take note that the global financial crisis started with 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, as people got overzealous and securitised those loans.
If we are not careful and prudent, the future of our economy could be affected. Such prudential guidelines are implemented because we want to sustain the performance of our economy.
Our household debt level is very high, at 87 per cent of gross domestic product, but we have always argued to analysts and ratings agencies that all those who borrowed have demonstrated that they have the capability to service that kind of debt level because of a steady income, job security and rising incomes.
Question: What are the loan approval and rejection rates like?
Answer: The rejection rate is below 20 per cent and approval rate is around 74 per cent.
Question: There is coffee shop talk that the government is running out of savings and trying to reach out to statutory body funds, such as the Employees’ Provident Fund (EPF) and Tabung Haji.
Could that be the case?Answer: The government is trying to improve its financial position, and they have done it in two ways that have produced positive results.
The first was to reduce subsidies, because subsidies have become a major burden on the government. Fortunately, it coincided with low global oil prices.
The government has benefited significantly in revenue from lower subsidies. The second is the introduction of GST, an important source of further revenue for the government.
The government needed to broaden its tax base… to provide all amenities, such as education and health facilities, and infrastructure development.
But the government also has to adjust and they have made the necessary adjustments. As I have said, this is a period of adjustment for everyone.
We can’t always have good times. Those who have built up buffers during the good times will survive better.
The EPF has a strong investment panel and a strong board. It is looking after all of our savings.
I believe this for they have done well, generated good rate of returns and been very careful in its investment activities.
So, I don’t think the government is going to plunder the EPF because it is the people’s savings.
Question: The ringgit weakened beyond RM4 to the dollar, beyond anyone’s imagination, making it a bane for all, especially households that have to reckon with higher prices of foodstuffs and such.
What is your message to homemakers?Answer: This is a challenging period and you have to learn to manage yourself. To say it is not a challenging period is denial.
But a lot of it is beyond our control. The fact that the dollar strengthened against 120 currencies is a reflection of this.
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. Those with savings will be able to ride out this period.
But they also have to manage themselves carefully. They must adjust to living within their means and look at all options and possibilities.
Businesses need to do the same. If they have difficulties and are experiencing financial stress, there are advisory services that can help get their debts restructured and so on.
They have to be aware of programmes that may help them. There are programmes for those in the workforce to be retrained and assistance is available for those with children studying abroad… they have to look at all the potentials.
They can also look at opportunities in local universities. Maybe a university degree should not be pursued, but other areas, such as in the technical or services sector.
You have to be more aware of how the economy is evolving and what kinds of skills are needed for this new environment.
The second and final part of the interview with Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz will be published tomorrow.
She speaks about the challenges and growth outlook for the Malaysian economy and her time at the helm of the central bank.