Cheaper loans in store
Interest rates at an all-time low to fast-track economic recovery
PETALING JAYA: Bank Negara has gone full-throttle to accelerate Malaysia’s economic recovery after it slashed the benchmark interest rate to 1.75%, an all-time-low since the central bank adopted the overnight policy rate (OPR) framework in 2004.
This is a clear message that there continues to be a need for cheaper funds, particularly in reinvigorating consumption and investments.
The OPR was cut by 25 basis points (bps) from 2% earlier, marking it the fourth round of cuts this year.
“The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2% and 1.5% respectively,” stated Bank Negara.
The central bank is cognisant of the fact that broad-based weakness in labour markets and precautionary behaviour by households and businesses remain a major headwind for the domestic economy.
This was despite its hint that the economy will recover from the current third quarter onwards, judging from its view in the latest Monetary Policy Committee (MPC) statement that “a trough is expected in the second quarter”.
“The projected improvement in the domestic economy is expected to be further supported by a gradual recovery in global growth conditions.
“The pace and strength of the recovery, however, remain subject to downside risks emanating from both domestic and external factors,” it added.
Theoretically, a lower OPR would be able to stimulate the purchase of big-ticket items such as vehicles and property, which are generally funded by borrowings.
Businesses would also be more inclined to borrow for expansion or investment purposes, as a reduction in the OPR lowers borrowing costs.
In a subdued economic environment where the growth in private consumption has slowed substantially and new loan applications have declined year-on-year for three consecutive months, cheaper borrowings should help in spurring demand.
However, continued poor sentiment in the economy, exacerbated by fears of Covid-19, could diminish the benefits of a lower OPR.
Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said, “Malaysia’s economic recovery is also subject to the collective effort of all parties including corporates, SMES, businesses and consumers, particularly in ensuring that the rakyat’s lives and livelihoods are protected and the economy is strengthened.
“In the past, Malaysia had demonstrated its resilience in managing various challenges, including the Asian Financial Crisis and the Global Financial Crisis, due to its sound economic fundamentals and robust institutional framework, as well as deep and well-regulated financial and capital markets.”
Speaking with Starbiz, MIDF Research senior analyst Imran Yassin Md Yusof said that it was highly unlikely for the banking sector’s new loan applications to improve sharply, even with the OPR cut.
“Businesses are still cautious and households are impacted by the higher unemployment or pay cuts post-covid-19 outbreak,” he said.
However, he pointed out that the reduced OPR may potentially spark another round of rally in the equities universe.
“With more liquidity in the market, you can expect a rally. But, it will be only for a short term,” he said.
In its latest MPC statement, Bank Negara said economic activities had begun to recover from the trough in the second quarter, following the gradual and progressive re-opening of the economy since early May.
“The fiscal stimulus packages, alongside monetary and financial measures, will continue to underpin the improving economic outlook,” it said.
Most economists had expected a cut in the OPR by 25bps to 1.75% at the latest MPC meeting.
According to 14 of the 25 economists surveyed by Bloomberg, they had expected a 25-bps cut. Four predicted a 50-bps reduction and the rest expected no change.
With the 25-bps reduction in the OPR yesterday, Bank Negara has cut it by 125bps over the past four meetings.
Judging from the MPC statement, Bank Islam chief economist Mohd Afzanizam
PETALING JAYA: Airasia Group Bhd said it is taking steps to weather the financial crunch it is going through even as its external auditors Ernst & Young raised concerns about the company’s financial statements for the financial year ended Dec 31, 2019 (FY19).
In an announcement to Bursa Malaysia, the auditors issued an unqualified audit opinion due to material uncertainty relating to going concern, in view of the current economic condition and the Covid-19 pandemic.
“We draw attention to Note 2.1 and Note 48 to the financial statements, which indicate that the group has a net loss of Rm283mil for the financial year ended Dec 31, 2019 and the current liabilities exceeded its current assets by Rm1.843bil,” the statement to Bursa Malaysia said.
“Further, in early 2020, the global economy, in particular the commercial airlines industry, faces uncertainty as a result of the unprecedented Covid-19 pandemic,” it added.
Among the measures Airasia has implemented include resuming operations on a staggered basis in June 2020, said the airline.
It said in note 48 of its audited financial statements for the FY19 that it has seen positive developments on its business operations as passenger seat booking trends, flight frequencies and load factors are gradually improving to cater for the increasing demand.
“The group expects the business operations to gradually return to normal operations level by early 2021,” Airasia said.
“Nonetheless, the overall timing of recovery of the Covid-19 pandemic would affect the ability of the group to meet its forecast revenue, which in turn affects the group’s cashflow generated from operations,” it said.
In terms of funding, the group said that its existing lenders have provided support through the rollover of its facilities.
“In Malaysia, certain financial institutions have indicated their willingness to support the group’s request for funding with amounts of up to Rm1bil, of which certain amount is eligible for the government guarantee loan that will be provided under the Danajamin Prihatin Guarantee Scheme and the outcome is expected to be favourable,” it said.
Airasia said its subsidiaries in the Philippines and Indonesia have also applied for bank loans from their respective existing and new lenders and are on various stages of application.
It said operations in the Philippines is expected to obtain funding through the government guaranteed loan under the Philippine Economic Stimulus Act, which is expected to be passed as law in September 2020.
“The group plans to raise capital of up to Rm1.4bil as and when required to strengthen its equity base and liquidity and expects a successful implementation on these capital raising plans,” it said.
It said that it had also managed to seek deferrals for payment of aircraft operating leases with lessors and had restructured fuel hedges exposures with certain counterparties to reduce its fuel hedging losses.
“The group is currently in the process of negotiating a further waiver or deferral of lease rentals and restructure the remaining fuel hedge exposures with supportive lessors and counterparties,” it said.
Airasia anticipates a strong rebound in demand for air travel given the gradual increase in passenger seat bookings, flight frequencies and load factor during the progressive upliftment of travel restriction.
The group has seen positive developments on its business operations as passenger seat booking trends, flight frequencies and load factors are gradually improving to cater for the increasing demand, the auditors said and acknowledged.
“The financial statements of the group have been prepared on a going concern basis, the validity of which is dependent on successful recovery from the Covid-19 pandemic in conjunction with the actions undertaken by the government of the respective countries,” it said.
The auditors added that the favourable outcome will also depend on the ongoing discussions with financial institutions and investors to obtain required funding and the successful implementation of the management’s plans for future actions in responding to the conditions stated above.