Malaysian banks are expected to see a dip in loan demand and credit card spending over the coming months as local consumers anticipate the end to the country’s goods and services tax, or GST, under the newly elected government, analysts say.
Lim Guan Eng, who will oversee Malaysia’s finances in Prime Minister Mahathir Mohamad's new government, will spearhead the repeal of the unpopular 6% tax on goods and services, in keeping with campaign promises. The tax had been introduced in 2015 in a bid to shrink the fiscal deficit.
Jarren Tam, a senior policy analyst at the Kuala Lumpur-based Centre for Public Policy Studies, said banks in Malaysia are likely to see a slowdown in consumer loan demand for big-ticket purchases as well as credit card spending in the short term.
“There will be a dip in consumption levels as people delay purchases over the next one to two months, while they wait for Lim and the new government to do away with the GST as they promised in their manifestos,” said Tam.
“Conversely, savings will go up in this short term.”
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Lim Guan Eng, left, with Malaysia's Prime Minister Mahathir Mohamad Source: AP |
Consumer debt in Malaysia had been an area of focus under previous governments.
"Banks operating in Malaysia remain exposed to some risks due to imbalances built up during 2010 to 2013 from rapid property price growth," an S&P Global Ratings report published in October 2017 wrote, adding the country's central bank has since tightened credit flows to households. The government had also taken steps to curb speculative property purchases and increase property supply.
From state to country
Mahathir, who was prime minister between 1981 and 2003, named Lim, a chartered accountant, finance minister in his latest government May 12. Lim, who is chief minister of Malaysia's relatively small but economically robust Penang state, will take over the finance portfolio from former Prime Minister Najib Razak, whose party lost the May 9 general elections.
Prior to the general elections, Lim had been an outspoken critic of the tax. He said he plans to comment on official matters after he is sworn in, according to a May 13 New Straits Times report, while reiterating his party’s pledge to abolish the tax.
The timeline for how Lim and the new government will address these challenges is unclear.
Pong Teng Siew, research head of Inter-Pacific Securities in Kuala Lumpur, said it remains to be seen how quickly Lim can repeal the tax. “[Lim] will no longer be running a small state in Malaysia,” he said in an interview. “This is the first time he will be dealing with issues on a national level, so we’ll see.”
Of a national population of 32.3 million, Penang is home to an estimated 1.75 million people, according to official 2017 statistics. However, it combined with five other states to account for 71.2% of Malaysia's 2017 GDP across 15 states.
Pong said the new finance minister will be backed by a council of experienced advisers that is expected to include former Finance Minister Daim Zainuddin and former central bank Governor Zeti Akhtar Aziz.
“The tools are there for Lim to succeed. The rest is up to him.”
S&P Global Market Intelligence and S&P Global Ratings are part of S&P Global Inc.

