I REFER to the letter “Bank's collection agency as bad as Ah Long,” (The Star, May 17) in which the writer says, “The banks have certainly lost their sense of professionalism.”
I agree and although such complaints only appear occasionally in the press, there are reasons to believe that many people are in the same unfortunate situation and their number is increasing daily.
These people are harassed relentlessly and mercilessly while they are unable to defend themselves, either because they don't know how or they think the bank is right.
Yet, the bank is not right. Two essential laws of economics and business state that money is the reward for work done, and a business deal must be equitable to be successful.
Banks were originally set up so that customers could deposit their money with them.
A deposit is automatically a saving because the customer would not put the money in the bank if he needed it. If the bank is true to its function, it should guard the customer's money and also increase its amount.
This way, the customer's confidence in the bank will grow and he will continue to deposit money with it.
In order to increase the customer's money, the bank must set to work and ensure the deposit grows in a manner that is lawful and beneficial to the customer, the bank and society at large.
These days, banks prefer to make money by charging late payment fees and a host of other punitive fees which are non-earned income and therefore can be termed as usury.
Besides destroying customer's confidence, usury seriously undermines the economy because usury does not recognise the value of work and only concentrates on getting the pieces of paper and coins that constitute money.
The banks have also forgotten how to make an equitable business deal.
Equitable means that both parties in the transaction stand to gain or lose in the same proportion.
Bank deals, however, are inevitably slanted in favour of the bank. Maybe the banks think that giving out money also gives them the upper hand.
But the fact is that money in itself has no value, rather it is work that brings value to money.
Usury disregards the value of work, and people who have no work or are not adequately paid for the work they do, simply cannot repay their loans.
A bank that lends money and does nothing to ensure economic conditions are favourable to both employment and trades, will eventually end up getting money only from the National Mint.
The banks must urgently revise their way of doing business and foster a culture of saving, where saving does not mean refraining from buying, but rather buying what you need with the money one has saved from what he earned from his work, and not borrowed.
The Government, on its part, must considerably reduce their humongous benefits and subsidy schemes that render people dependent, debt ridden, sick and poor.
No government or business can defy the law of the market which states that money is the reward for work done.
With everyone looking at Europe through a veil of fear and uncertainty, you might think that you need to rush to buy bargain European stocks on the cheap before the big sale ends. But buying stocks isn't like shopping for Christmas presents on Black Friday. Often, those who wait get the best bargains of all.
Ugly and uglier The turmoil in Greece has turned all eyes toward the Euro zone, as fears have risen that sovereign debt defaults could cause a huge ripple effect throughout the world's banking system and the global economy as a whole. After weeks of maneuvering and stalling, the European Union and the International Monetary Fund announced a $1 trillion rescue package early last week, similar in scope and purpose to the TARP bailout that the U.S. implemented two years ago in response to its own financial crisis.
As happened here two years ago, European stocks got a brief shot in the arm from the news. Markets in Britain, France, and Germany all reversed some of the steep losses they'd suffered, and the euro halted its freefall against the U.S. dollar -- temporarily.
Some think that means opportunity. But buying now could be jumping the gun.
Looking longer-term The problem is that in crafting a short-term solution, Europe left itself exposed to the same troubles that plagued the U.S. two years ago. The huge budget deficits that resulted from government spending here prompted a flight away from the U.S. dollarto the euro and other currencies, which at the time were perceived as being more stable.
Now, Europe is in the same boat. Even though the European Central Bank is generally perceived as being more hawkish in preventing inflation than its Federal Reserve counterparts in the U.S., the ECB can't really afford to raise rates without endangering the effectiveness of the rescue package.
The region is also going through political upheaval. The election in Britain earlier this month resulted in a fragile coalition government that has further diminished confidence in the British pound. The ruling party in Germany suffered a defeat in local elections that brings into question whether current Chancellor Angela Merkel will survive the fallout from the unpopular EU bailout.
Meanwhile, the U.S. economic recovery seems to be continuing. Improvement in job growth and greater import demand could further revive once-struggling consumers. Resulting inflation pressure would typically lead the Fed to raise interest rates, making the U.S. dollar even more attractive.
Don't cut your winners What this means for investors is that looking for bargains in pound- or euro-denominated assets is probably premature. In the U.S., it took months for markets to become convinced that the financial system wasn't falling apart -- and patient investors who waited it out throughout 2008 got cheaper entry points for their stock purchases in early 2009.
Among direct currency plays, buying CurrencyShares Euro Trust(NYSE: FXE) or CurrencyShares British Pound Sterling Trust(NYSE: FXB) would leave you exposed to further losses if the dollar keeps strengthening against the two currencies. In contrast, buying shares of PowerShares US Dollar Bullish(NYSE: UUP), which uses futures in the euro-dominated US Dollar Index, will likely give you profits if the euro keeps declining.
On the stock side, remember that a rising dollar will actually help some European companies. GlaxoSmithKline(NYSE: GSK) got 36% of its 2009 revenue from the U.S., while German software giant SAP's (NYSE: SAP) U.S. market makes up about a quarter of its revenue. As it will take three to six months for a stronger dollar to filter its way through to financial reports, you can likely afford to wait for better exchange rates before investing.
In contrast, a stronger dollar may eventually cause trouble for U.S. companies that do significant business in Europe. The last time the dollar was strong, McDonald's(NYSE: MCD) and Mattel(NYSE: MAT) both argued that it hampered their profitability.
Race to the bottom Those who are bearish on the U.S. dollar's prospects have reason for their pessimism. But as bad as fundamentals may look for the dollar, they're even worse for the euro and pound. That means that the dollar may get a respite here, at least for now.
PETALING JAYA: The stronger ringgit is bringing cheer to Malaysians eager to squeeze more from their money. In the travel industry, operators are expecting a boom in business because many will want to cash in on the chance to see the world for less.
“And with low-cost carriers offering so many destinations, people will tend to travel more at a relatively cheaper cost,” said Malaysian Association of Tour and Travel Agents (Matta) president Datuk Mohd Khalid Harun.
He recalled that when the Australian dollar was selling at a lower rate (RM2.50 to the dollar) a few years back, there was a big shift of Malaysians going there.
However, he reminded travellers always to get value for their money, because the cheapest travel need not mean the most enjoyable experience.
Writer Foong Chee Yan, 23, who will be going on a business trip to England, was happy he would be spending less during his trip.
Parents with children studying overseas are also happy with the stronger ringgit.
Peter Yoong, 49, a residential manager, said his eldest son would be leaving for his Computer Science studies in Oklahoma in August.
He expected to pay US$12,000 (RM38,700) in fees annually. In March, Yoong said the exchange rate was RM3.30 to the dollar. “Now, the rate is at RM3.20. There is definitely some savings here,” he said.
Global forex swings to hit exporters
Firms are more exposed to fluctuations in US dollar than to euro or pound
By ELAINE ANG elaine@thestar.com.my
PETALING JAYA: The recent fluctuations in global exchange rates will affect export-driven companies and conglomerates with substantial overseas operations, companies with large import contents and those with plans to invest abroad, experts say.
Companies are more exposed to fluctuations in the US dollar as compared with the euro or pound as it is the leading currency for trans-border trades due to its world reserve status and that most major commodities are traded in the greenback.
The ringgit has appreciated as much as 7% year-to-date against the US dollar, (19% against British pound, 24% against Euro, and 8.5% against Australia dollar)
AmBank Group treasury and markets managing director Teng Chean Choy said companies with a direct revenue base in Britain and Euroregion were exposed most to currency fluctuations following jitters in the region from the debt crisis in Greece and the uncertainties resulting from a “hung parliament” in Britain.
Since the beginning of the year, the euro and pound have depreciated by about 19% and 16% respectively against the ringgit. Teng expects the euro and pound to remain weak in the near term as sentiments remained cautious following the debt overhang problem within the Euro-region.
However, the ringgit would likely continue to remain resilient in tandem with other Asian currencies, boosted by the positive outlook on the region's fundamentals.
According to Teng, the appreciating ringgit can potentially cause foreign exchange (forex) translation losses in companies whose revenue is derived substantially from export earnings in US dollar, especially those with thin margins and little pricing power due to stiff external competition.
Industries within this sector include electrical and electronics, semi-conductor, manufacturing, apparel and timber-based industry.
Another category of companies which are adversely affected by recent forex movements are companies with substantial overseas operations, particularly in the northern hemisphere.
Teng said the weak consumer sentiment in the United States, Britain and Euro-region, coupled with the recent appreciation of the ringgit against the US dollar, euro and pound, continued to depress earnings translated back into the ringgit.
“In fact, companies falling within this category are hit in two ways: depressed revenues as a direct result of lower sales volume and indirect forex translation losses due to the weaker US dollar, euro and pound against the ringgit.
“Conglomerates with overseas exposure fall into this category,” he added.
On the flipside, companies with substantial import of raw materials priced in US dollar or euro are poised to gain from lower input cost with the recent strengthening of the ringgit.
They include those in the chemical-intensive industries in which chemical inputs are largely priced in US dollar and those in industries requiring large machinery capital expenditure which are priced either in US dollar or euro.
Teng said companies with plans to invest abroad could benefit from the recent stronger ringgit.
They include local conglomerates or venture capitalists looking to acquire overseas businesses and private funds and public pension funds seeking to diversify their investments in foreign assets.
MIDF Research senior analyst Syed Muhammed Kifni said companies with financial obligations denominated in US dollar would also gain from the depreciation in the translation amount of its debts.
For example, Tenaga Nasional Bhd is expected to gain from the decline in the US dollar vis-a-vis the ringgit on two scores.
“First, a weaker greenback will contribute to better margins from lower fuel costs due to the cheaper import price of coal.
“Second, a stronger ringgit benefits Tenaga in terms of the translation gains of its dollar-denominated debts,” Syed Muhammed said.
He added that in contrast, semiconductor companies such as Unisem (M) Bhd, Malaysian Pacific Industries Bhd and Globetronics Bhd were negatively affected by the strengthening of the ringgit as their revenues were dollar-based.
“However, the semiconductor companies are also reaping the benefits in terms of lower costs as nearly 80% of their input cost structures are in US dollar,” he said.
RAM Holdings Bhd group chief economist Yeah Kim Leng said a stronger currency in the longer term would also encourage firms to upgrade and enhance productivity through the import of technology as well as acquire foreign assets as these have become cheaper.
“This will facilitate industrial upgrading,” he said.
He does not rule out further ringgit appreciation against currencies such as the US dollar, euro and pound as recovery of the advanced economies would be weak and uneven.
Rousing ringgit
By Florence A. Samy The Star Publication Date : 18-05-2010
Most Malaysians welcome a strong currency as it reflects the country's strong economic fundamentals and a robust recovery, Prime Minister Najib Tun Razak told international financiers here yesterday (May 17).
“It is a movement in a positive sense. Generally, it is good for us,” Najib said during a question-and-answer session with delegates of the Official Monetary and Financial Institutions Forum (OMFIF) inaugural meeting in Asia.
At the meeting themed “Asia's Role in the World Economy - the New Global Financial and Economic Order,” he was asked to comment on the ringgit's strong performance especially against the US dollar, pound and euro.
Najib, who is also finance minister, said a strong currency also reflected the fact that Malaysian exports had been doing very well.
The economy recorded 10.1 per cent growth in the first quarter of this year, which was the highest quarterly growth in a decade.
The ringgit is Asia's best-performing currency this year, as foreign money has poured into domestic capital markets due to a combination of strong economic growth and rising interest rates.
Year-to-date, the ringgit has appreciated by about 6% against the US dollar, 19 per cent against the euro and 16% compared with the pound.
In his address earlier, Najib also said the challenges that arose from the international financial crisis presented an opportunity for Asia and the West to work together to find solutions that benefited all.
“Malaysia's unfolding economic story is a part of what is taking place in Asia. While Asia is indeed diverse, we are bound together by the common desire to transform and uplift our economies individually, which in turn will reinforce the region's economic and financial integration in the New World Order,” he added.
“We are looking beyond Asean. We are also looking at how to get the United States and Russia on board. We want a stronger bridge in Europe and believe in open integration,” he added.
Najib, who briefed the delegates on the 1Malaysia concept, New Economic Model and Government Transformation Programme, said people were seeking effective governance where economic growth was inclusive and beneficial for all.
On how to survive the economic crisis, Bank Negara Governor Dr Zeti Akhtar Aziz said Asia's resilience, including Malaysia's, was a result of a decade of reform.
