Malaysia's trade

Thursday September 8, 2011
M'sian banks see little impact on trade financing from US debt rating downgrade
By SHARIDAN M. ALI
sharidan@thestar.com.myPETALING JAYA: Trade financing business is expected to be impacted by the spiral effects of the foreseen slowdown in Malaysia's major exports, triggered by the recent US debt rating downgrade.
RHB Bank Bhd principal officer Renzo Viegas told StarBiz that within its existing customer base, the direct trade volume to the United States was marginal compared with the Asian region.
“But the greater concern is the indirect impact of trade within Asia which represents more than 80% of our trade volume concentration.
“As some components of the country's export to Asia are part of the supply chain for ultimate exports to the United States, we foresee the negative development in the US will have an impact on our trade with Asia. This probably will be seen in the latter part of the third quarter as consumer demand for the year-end sale is expected to be slower in the US and Western countries,” he said.
Meanwhile, OCBC Bank (Malaysia) Bhd head of global trade finance Thing Tock Kong said Malaysia's direct exports to the United States amounted to about 10% of its total exports.
“However, some of our exports to other countries do eventually end up in the United States, although with lagging effect. So, overall, in reality, more than 10% of our goods are being sold to the United States.
“So far, based on feedback from our clients, there has not been any cancellation or deferment of orders. Thus, we see the immediate impact as minimal.
“However, as an open economy, we would be affected if the crisis in the US were to prolong and become protracted, especially in the case of exports of certain consumer products. The severity of the impact will become clearer as the situation evolves,” he said.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias expects Asia's trade performance to be softer in the second half of this year.
“Considering that Malaysia's exposure to the global economy is considerable (exports represent 110% of gross domestic product), the export sector will likely be affected.
“Although Malaysia's exports to the United States have declined in terms of share of total trade, indirect exports (through Asean countries and China) to the United States as well as to other G3 countries are still very significant.
“As such, we are still very much dependent on the strength of G3 economies when it comes to external trade. If the demand from G3 wanes, Malaysia's export performance will also languish,” he said.
G3 nations comprise the United States, Japan and members of the eurozone.
Briefly, trade finance is needed when an exporter requires an importer to prepay for goods shipped. The importer's bank assists by providing a letter of credit to the exporter (or the exporter's bank) providing for payment upon presentation of certain documents, such as a bill of lading.
On the bright side, Viegas said Malaysia's trade with Asia as of June recorded growth of more than 15% year-on-year (y-o-y)and saw higher growth within Asean at 25%.
“Trade with Australia and New Zealand had also posted strong growth. Although the base is still small compared with trade with the West, it will help to cushion some of the impact on declining trade with the West. We still expect growth in trade with some of the Middle Eastern countries and the rebuilding of Japan will to a certain extent help boost the trade business.
“The expected faster pace of development of the Economic Transformation Programme projects next year will also help Malaysian's trade finance business to move in a positive direction,” he said.
Meanwhile, Thing said that Malaysia's exports to China, India and Asean countries stood at about 40% of the total.
“The growing population and wealth of these markets will continue to support our exports,” he said.
Viegas said that as of June this year, RHB's trade finance business, including Islamic trade financing, grew by more 11% y-o-y, which was above the industry's growth of about 9%.
Nevertheless, despite the downgrade in credit rating in August, the United States early this month released some positive economic data that indicated growth in consumption, where orders for cars were at their highest in eight years, and companies in the private sector continued to hire, adding some 90,000 new jobs in August.


Ringgit Little Changed Ahead of Export Data, Policy Rate Review
Malaysia’s ringgit was little changed as economists predicted the central bank will leave borrowing costs unchanged at a review tomorrow as export growth likely slowed.

Overseas shipments rose 6.6 percent from a year earlier in July, after having increased 8.6 percent in June, according to the median forecast of analysts in a Bloomberg survey before official data due later this week. Bank Negara Malaysia will leave its benchmark overnight rate at 3 percent tomorrow, according to all 18 economists in a separate survey. The ringgit has dropped 0.4 percent this month on speculation Europe’s lingering debt crisis will damp demand for emerging-market assets.

“The unresolved crisis in Europe and expectations of slower domestic export growth are weighing on sentiment,” said Akira Banno, a treasury adviser in Kuala Lumpur at Bank of Tokyo-Mitsubishi UFJ Bhd. “The ringgit is trying to find a comfortable level to settle down.”

The ringgit held at 2.9830 per dollar as of 5:01 p.m. in Kuala Lumpur, according to data compiled by Bloomberg.

“There is now a new uncertainty about prospects for recovery and growth across the globe, partly because of the inability of the U.S., Europe and Japan to address their public debt and employment problems,” International Trade and Industry Minister Mustapa Mohamed told reporters in Kuala Lumpur today. This has “affected business and investors confidence around the globe. Our economic fundamentals are strong, healthy and resilient.”

Malaysia’s government bonds gained as a sale calendar shows the treasury will sell November 2016 Islamic notes later this month. The yield on the 4.262 percent securities due September 2016 declined one basis point, or 0.01 percent, at a record low 3.29 percent, according to Bursa Malaysia.