Lending standards and windfall tax

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There’s a proverb in Malay called ‘durian runtuh.’ Briefly, it meant unexpected big profits. In one English word, it’s ‘windfall’. In the world of tax, there’s this tax called windfall tax. This is the explanation by Investopedia: Windfall tax is a tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. Windfall taxes are primarily levied on companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses. This term ‘windfall tax’ was mentioned by our Finance Minister Lim Guan Eng and was quoted in many media outlets yesterday.

Article in thestar.com.my here. Finance Minister Lim Guan Eng has urged banks in Malaysia to ease their lending requirements to reduce the difficulties faced by individuals and businesses to secure financing. He said, “Banks should be more more flexible in their lending arrangements. We get many complaints about banks being very conservative in lending, although they recorded huge profits last year with some of them posting their largest profits ever. We don’t have windfall taxes for banks in Malaysia. So, it is time for you to start lending unless you prefer windfall taxes.” He was speaking during the Invest Malaysia forum yesterday. Article in thestar.com.my here.

I looked at the banks’ profit numbers. It did not have the ‘sudden huge profits’ associated with a ‘windfall’ or ‘durian runtuh.’ It’s growth is continuous over the years and many banks got better profit numbers due to rationalisation done earlier. Relying on loan growth alone is definitely not possible. In fact, one major reason why Malaysia did not fall into the Mortgage Crisis which happened in the U.S. in 2008 was because our Bank Negara (BNM) was very vigilant and the banks themselves were lending responsibly. I do not wish for Malaysian banks to face the 1997 / 1998 situation again where the NPLs were double digits.

Perhaps BNM can again be the authority to spell out what banks could focus on to facilitate for these ‘easier loan approval’ for certain segments of the market. Till then, for all the first-time home buyers, please focus on buying based on what we could afford. Our ex-BNM governor said the same thing previously. Earlier article here: Buy within affordabilityMy first property was a secondary apartment of 730 sq ft in a ‘not-so-popular’ area in Penang. I enjoyed that property for many years before I upgrade. Any reason why the Malaysians of today MUST start their first property with a full facility condo in a popular area? Happy following.

written on 21 March 2019

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Article written and edited by Charles. News article summarised by Dina Batrisyia.

Next suggested article: 6 things about buying a property and getting a loan

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