Malaysian car prices to drop gradually?

Revised NAP likely to include policy to reduce car prices over next 3-4 years

PETALING JAYA: The revised National Automotive Policy (NAP) will include a policy that will address the gradual reduction of car prices in the country, said an industry source.

What happens to second-hand cars? Naza Group of Companies joint executive chairman SM Nasarudin SM Nasimuddin was quoted in a recent report as saying: if prices dropped, the resale value of a car would then plummet but the loan amount owed to banks (on cars already bought) would be unchanged.

“The Government, through the Malaysia Automotive Institute (MAI), had engaged us in the past few months to discuss on the matter,” he told StarBiz.

“There will be a policy that will tackle the gradual reduction of car prices in Malaysia. Details of this policy are expected to be made public in the near future,” he added.

The source said the policy would outline a structure to gradually reduce car prices over the next three to four years.

The Government has been considering it (the reduction of car prices) in the revised NAP and it was only a matter of time for this issue to be addressed,” said the industry source.

It is a known fact that the prices of cars are high in Malaysia compared with Thailand.

However, it has been argued that the cost of vehicle ownership in Malaysia is still among the most competitive in the Asean region, primarily due to the subsidised fuel prices, cheaper road tax and insurance premiums.

In a recent news report, MAI chief executive officer Madani Sahari was quoted as saying that Malaysia had the second lowest cost of vehicle ownership in the region after the Philippines.

According to him, the cost of vehicle ownership in Malaysia, compared to Thailand and Indonesia, was lower by 39% and 12% respectively.

In terms of petrol prices, Thailand was the highest, followed by Singapore, Indonesia, Vietnam and the Philippines, Madani said in the news report.

Meanwhile, on the point of car prices being slashed overnight via the reduction of vehicle excise duties, industry observers argue that the impact would be negative for existing buyers rather than first-time ones.

“If you're a first-time buyer, it would be like a dream come true as it means you can now afford to buy a car that was too expensive previously,” said one industry observer who requested anonymity.

“For the existing buyer, it would mean that the resale value of the car would have diminished overnight,” he added.

It is also argued that the sudden drop in vehicle prices would have a severe impact on second-hand car dealers.

Those servicing existing car loans will also be severely affected.

In a local news report recently, Naza Group of Companies joint executive chairman SM Nasarudin SM Nasimuddin was quoted as saying that if taxes were scrapped, consumers would have to overpay bank loans taken for their vehicles.

In the report, Nasarudin claimed that if prices dropped, the resale value of a car would then plummet but the loan amount owed to banks would be unchanged.

By EUGENE MAHALINGAM  eugenicz@thestar.com.my/Asia News Network 

Related post:
Malaysia energy efficient vehicle hub from China?

Asian banks review US ties

Cost will rise when tough new rules on derivatives come into force

SINGAPORE: Asian banks are reviewing relationships with their US counterparts to avoid being caught by tough new American rules on derivatives trading that are about to come into force.

From the start of next year, non-US banks that annually deal in at least US$8bil worth of products such as interest rate swaps with American counterparties are expected to be subject to new derivatives rules in the Dodd-Frank Act.

In practice that means they will need to register as swap dealers with US regulators and abide by their rules on capital requirements and risk management, all of which adds to costs.

“If I have the choice, I just don't want to deal with a US person',” said a treasury manager at a regional Asian bank.

“We're still looking at our compliance situation, but it may mean that in future I need to ask all my US counterparties if there's a way they can change where they book their trades with us.”

A “US person” as defined by the regulation is a relatively broad term, intended by regulators to apply to any person or entity that will have an effect on American commerce.

The Dodd-Frank Act was spurred by the 2008 financial crisis and aims to impose tighter supervision of cross-border derivatives trade following incidents such as the loss-making trades by the socalled “London Whale” at JPMorgan's UK office.

But some lawyers say even entities that deal in a relatively small amount of derivatives could be forced to execute trades on an electronic platform and put them through a central clearing house acceptable to American regulators.

That has prompted a knee-jerk reaction from some Asian institutions to consider cutting all their derivative trading relationships with US counterparties, anxious to avoid higher trading costs and the spotlight of American regulators.

In reality, few banks were likely in the long term to cut all trading with US banks given that they provided a lot of liquidity to the market, and it would be hard to remain active in the global markets without them, he added.

In Hong Kong, Singapore and Japan combined, around US$143.1bil of interest rate derivatives were traded every day in April 2010, according to the most recent figures from the Bank of International Settlements.

While still small compared with the US$1.2 trillion traded in the UK and the US$642bil in the United States, the turnover has almost tripled from the US$50.8bil recorded in 2004.

American banks are big players in global over-the-counter derivatives markets, with JPMorgan Chase & Co, Citigroup Inc, Goldman Sachs Group Inc, Morgan Stanley and Bank of America Corp accounting for about 37% of all outstanding contracts, according to the International Swaps and Derivatives Association.

Asian players have a smaller share, although Singapore banks DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank Ltd account for a large part of the S$282bil of interest rate swaps cleared at the Singapore Exchange since it launched its clearing service in November 2010, analysts estimate.

Lawyers say US banks operating in Asia are now rethinking how they structure themselves and handle their trades.

“US groups that want to remain competitive in the non-US market will need to develop a structure that enables them to trade in a way that does not scare their counterparties away,” said Theodore Paradise, a partner at law firm Davis Polk & Wardwell in Tokyo. - Reuters

Eurozone woes tilt financial power in Asia’s favour

LONDON: As European banks retrench to recover from the global financial meltdown, they are finding ready buyers in Asia for everything from loans to entire insurance and broking operations.

There are other tell-tale signs of a shift in power: this year's two biggest initial public offerings after Facebook were launched not in the United States or Europe, but in Malaysia.

Yet perhaps what is more striking is that, with one or two exceptions, Asian financial firms are not doing more in Europe itself to capitalise on the eurozone's festering debt and banking crisis.

Take China. The economy has more than doubled in size in five years. It has some of the biggest banks in the world.

And its appetite for snapping up natural resources is undiminished: witness last month's US$15.1bil agreement by state oil company CNOOC Ltd to buy Canada's Nexen Inc, the biggest foreign acquisition to date by a Chinese company.

When it comes to the financial sector, however, the glass is half-empty, not half-full, said Andre Loesekrug-Pietri, chairman of A Capital, a China-Europe investment fund.

“There's a front-cover story every other month about China buying up the world, but China is still a very small player in international M&A,” he said.

David Marsh, co-founder of a forum in London that connects central banks and sovereign wealth funds with banks and asset managers, said the West no longer had a monopoly on innovation and dynamism in financial services.

But China was playing a long game, biding its time and waiting for bargains. With plenty of bankers and traders being made redundant, Chinese firms have the chance gradually to build up teams and expertise rather than making giant acquisitions.

“They'll be much more clever than simply buying moribund banks at high prices: they'll be buying people,” Marsh said.

“What we're seeing now is just the precursor of a much bigger shift that will take place over the next 10 years, but it won't happen in one fell swoop.”

China has not been completely asleep on the acquisitions front.

Two Chinese private equity funds are on the final shortlist of bidders for the asset management arm of Franco-Belgian financial group Dexia, a deal that could be worth 500 million euros or more.

And CITIC Securities has agreed to buy CLSA Asia-Pacific Markets, a highly regarded Hong Kong-based brokerage, from its French parent, Credit Agricole SA, in a two-stage transaction worth US$1.25bil.

The deal is symbolic. Whereas CITIC is China's biggest brokerage, Credit Agricole is battling mounting losses in Greece, the epicenter of the eurozone crisis, where it owns the country's sixth-largest bank, Emporiki.

“Distressed banks selling good assets always happens in a crisis like this. Banks which don't want to raise capital by issuing new equity end up selling their offshore assets, and typically they sell the crown jewels,” said Ken Courtis, founding partner of Themes Investment Management and a former vice-chairman of Goldman Sachs Asia.

A clutch of other European financial institutions is also beating the retreat in Asia.

Britain's Royal Bank of Scotland has offloaded some of its Asia-Pacific investment banking operations to Malaysia's CIMB Group Holdings Bhd, while ING is selling its US$7bil Asia insurance business. Both banks had to be bailed out by their governments during the crisis.

Integrating independent-minded CLSA would be one of the biggest challenges for CITIC, Courtis said. Chinese financial institutions in general have a narrow bench of executives with the right linguistic and overseas management expertise - one reason why they are initially beefing up their offshore presence in more-or-less familiar Hong Kong, he said. Reuters