Two friends did not believe me when I told them that 1MDB may be a huge issue for a few famous people but it will not affect the economy adversely and certainly have got very little to do with Ringgit depreciation or rather US$ appreciation. My earlier article here: RM down, end of the road soon? Of course, they disagree. Today in an article in a local English daily: 1MDB is a manageable risk, according to Fitch Ratings. Please google for Fitch Ratings if needed. The reason it is manageable can already be seen from the huge rejection of mortgage loans but in 1MDB’s case, all the banks do not expose themselves to one single borrower with a super huge borrowing. Anyway, Bank Negara Malaysia would also not allow it to happen. Hope everyone note that there are countries where lending is simple. You apply you get it. That was how some ‘amazing’ developed country can go into a crisis in the first place. Well, here in Malaysia, if you do not qualify, you simply just do not qualify. Buy a cheaper home and reapply, perhaps you may get it. This is how strict the banks in Malaysia are.
Fitch Ratings however said that there is certainly uncertainty as to the level of 1MDB’s debt but it appears to be manageable when compared to the size of the banking system. Besides that, adequate capitalisation and healthy profitability meant that currently, Malaysian banks are well positioned to absorb any significant increase in credit costs. In brief, should there be a sudden default in a big way, the banking sector should be able to hold its position. It said that 1MDB is not an indication of a broader systemic risj but of course it adds more challenge to the Malaysian operating environment in the near term. In brief, it will definitely cause negativity due to its huge debts but this does not mean there’s anything hugely wrong with the economy currently.
The best part about the discussion was, these two friends after insisting that 1MDB will affect the economy then asked me about properties to buy etc. Huh? Potential huge problems to the economy as what they said and yet they asked me where to buy? Are they out of their mind. 1MDB may fail anytime if they are right in their opinion. Why are they ‘locking’ themselves up by buying a property? Should they not keep cash in bank instead? Of course, find one bank without exposure to 1MDB please. Happy believing whatever you want to believe. Just make sure you act accordingly please.
written on 19 Mar 2015
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