Consumer Credit Bill to impact non-bank lenders

PETALING JAYA: The proposed Consumer Credit Bill (CCB) is expected to largely affect non-bank lenders, with minimal to no effect on banks, according to MIDF Research.

The research house said the bill aims to tighten regulation over the rapidly growing non-bank lending sector, which typically caters to borrowers of lower creditworthiness.

The CCB has introduced a comprehensive framework aimed at strengthening the consumer credit landscape in Malaysia, largely focusing on non-bank lenders.

Currently, a large proportion of credit providers and credit service providers are not regulated under any law.

MIDF Research noted that the rise in consumer credit in Malaysia has brought about a host of challenges, including rising levels of indebtedness, predatory lending practices, and insufficient consumer understanding of credit terms.

“We expect this to negatively affect non-bank lenders such as AEON Credit Service (M) Bhd, RCE Capital Bhd and ELK-Desa Resources Bhd.

“While one of CCB’s core aims is to promote non-bank credit as a whole, limitations brought about by conduct regulations should negatively impact these companies, as restrictions on recovery methods, advertising, and financing charges will affect the bottom line.”

On the other hand, the research house does not expect much impact on local banks as Bank Negara has already been diligent in enforcing fair and responsible market practices for quite some time.

Any impact on banks will only take place in Phase 3, which is scheduled beyond 2030, it added.

“Maintain ‘neutral’ on the banking sector, which serves as a viable haven.

“Given the lack of industry-wide tailwinds, we advocate a bottom-up approach to stock selection, preferring defensive names.

“Top picks are Public Bank Bhd and Hong Leong Bank Bhd.”

While sector valuations remain attractive, MIDF Research does not foresee a meaningful rebound until more convincing signs of improvement in the global economic and geopolitical situation are seen.

“The weaker global economic outlook still sours the outlook of banking fundamentals, though conditions have improved over the last month,” it noted.