01 July 2014

Timely release of M’sian house price index puts the country in a favourable light

  01 July 2014

BANK Negara’s release of the Malaysian house price index (MHPI) is timely, just two weeks after the International Monetary Fund (IMF) launched comparative data on house prices.

The release of information puts the country in a favourable light against the IMF’s complaint that countries like Australia have yet to introduce measures to control risky bank lending.

More than 20 countries have adopted macro-prudential measures to control rising house prices, says the IMF on its website.

Malaysia, with its pre-emptive measures dating back to November 2010, would probably be among those countries.

For the first time since the third quarter of 2011, the growth in the MHPI declined to 9.6% in the fourth quarter of 2013, compared with 12.2% a year earlier, said StarBiz, quoting data from Bank Negara.

Property prices are closely watched as IMF research indicates that boom-bust patterns in home prices preceded more than two-thirds of the recent 50 systemic banking crises.

The latest to announce curbs on risky mortgage lending is Bank of England, which capped some home loans and toughened mortgage affordability tests.

China’s auditor is digging deeper into the abuse of bank loans.

The country’s chief auditor has found that since 2012, Chinese gold processing firms have used falsified gold transactions to borrow 94.4 billion yuan (US$15.2bil) from banks, Reuters reported.

Spot checks on 25 companies that process bullion showed they made a combined profit of more than 900 million yuan by using the bank loans to take advantage of the difference between onshore and offshore interest rates, as well the appreciation of the Chinese currency, said Reuters, quoting a report on the National Audit Office’s website.

Earlier, the National Audit Office released separate reports about Bank of China, the country’s fourth largest bank, and Agricultural Development Bank of China, a state-owned bank that supports the government’s farm policies.

The auditor found that six Bank of China branches disbursed 6.4 billion yuan (US$1.03bil) of loans that violated China’s lending policy in the past 10 years, according to Reuters.

Three other Bank of China branches were also found to have made 3.2 billion yuan worth of loans between 2009 and 2012 to businesses that were not involved in genuine trade, the newswire added.

Similarly for Agricultural Development Bank of China, the auditor found that the bank made a total of 6.8 billion yuan worth of “irregular” loans by relaxing its lending rules in the six years to 2012, said Reuters.

The report said the Agricultural Development Bank had also disposed of 1.5 billion yuan worth of non-performing loans in the past five years through “irregular” means.

Both banks said they have rectified the problem.

China is stepping up its controls on bank lending and some of these irregular bank loans will probably form the basis of further investigation.

These investigations are timely, as China’s corporate debt has become a cause for concern.

US investigators are now turning to broker run trading systems known as dark pools where participants are anonymous and trading information is hidden until the trades are completed.

Barclays Plc has been slapped with a lawsuit by the New York attorney-general, who alleges that in order to increase business in its dark pool, it has favoured high-frequency traders and gave them systematic advantages over other investors trading in the pool, said Reuters.

Barclays and the US Securities and Exchange Commission have declined to comment.

This is another aspect of regulation that banks have to brace themselves for after the investigations into market rigging, money laundering and mishandling of mortgage loans.

Regulators are really digging deep and far and wide for any potential misdeeds to prevent another credit blow-up.

Columnist Yap Leng Kuen is intrigued with terms popping up in the financial system such as shadow banking and dark pools.



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