This article first appeared in The Edge Financial Daily on August 1, 2018

KUALA LUMPUR: Loan approvals for purchases of passenger cars increased significantly to 21.9% in June, from a negative growth of 2.5% in May, mainly due to a higher demand of financing during the tax holiday period, said Bank Negara Malaysia (BNM).

The tax holiday period refers to the three months from June 1 to Aug 31 during which the goods and services tax (GST) is zero-rated from 6%, and prior to the reinstatement of the sales and services tax from Sept 1.

In its statement on monthly highlights for June released yesterday, BNM said the growth of household loan applications also increased to 15.3% from a negative growth of 2.9% in May.

The central bank also noted that the outstanding loan growth remained stable for both businesses (at 3% from 3.2% in May) and households (at 5.8% from 5.6% in May).

Net financing growth, which refers to the outstanding loans of the banking system excluding development financial institutions and outstanding corporate bonds, was sustained at 6.9% from 6.8% in May.

The growth was supported by the steady growth in both outstanding corporate bonds (June: 12.4%, May: 12.2%) and outstanding banking system loans (June: 5%, May: 4.9%).

Meanwhile, BNM said the asset quality of the banking system remained sound, with the level of net impaired loans ratio and total provisions to total loans ratio staying unchanged at 1% and 1.5%, respectively, in June.

The central bank said that given the stable credit condition and its benign outlook, the remaining impact of Malaysian Financial Reporting Standards 9: Financial Instruments on banks is expected to be manageable.

On another note, BNM shared that the Index of Distributive Trade growth moderated in May to 5.8% from 6.4% in April due mainly to a decline in the motor vehicles segment, as consumers delayed purchases to benefit from the zero-rating of the GST.

The wholesale and retail segments, however, improved amid continued strength in trade activity and better consumer sentiment.

BNM also said that the domestic financial markets continued to experience non-resident outflows amid renewed trade war concerns and expectations of a faster pace of US monetary policy normalisation.

“The FBM KLCI declined by 2.8% and the ringgit depreciated by 0.5% against the US dollar.

“The domestic bond market, however, was supported by strong demand by domestic institutional investors. During the month, Malaysian Government Securities yields declined by between 0.4 and 8.8 basis points,” the central bank said.