Bank Negara Malaysia is having none of it. They are tired of people blaming them (too much) for the generally weak residential property market in the country.

In its 1Q17 Quarterly Statistical Bulletin, BNM wrote housing loan approval rate over the past few years had not fallen, citing statistics that 74.2% of all applications were approved in the first quarter, and this number almost matches the 2012-2016 average. This is in contrast to the 40% approval rate often cited in the media, which originates from developers and other players in the private sector. With this as a proof, the central bank calls the 40% rate a myth.[1]

Except, BNM may have been too hasty in passing a conclusion and they may have overlooked an alternative method to calculate the approval rate.

The central bank calculates the ratio by taking “the number of housing loan applications approved by all banks in Malaysia to the number of housing loan applications received by the banks during the same period.

But the 40% rate is calculated based on total value of all housing loans approved, to the total value of application in the banking system. Some analysts calculate it differently by lagging the value of approved loans by a month in an attempt to capture the fact that banks take several weeks to process and deliberate on any application. The lagging would change the number, but the overall trend would be pretty much the same.

You can see the rates under the value-approach here:

Housing loan approval rate among Malaysian banks, value-approach. Source: Bank Negara Malaysia

The 40%, in fact, comes from a database maintained by BNM. Specifically, you can get the 40% rate by taking the value of residential property found file 1.10 and divide it by the corresponding value found in file 1.12.[2]

So, the 40% it is not a myth. That particular rate has not been picked out of thin air. It is just that BNM may have overlooked the fact that there is a different way to calculate the rate. Instead of volume-approach, there is a value-approach alternative.

Which method is more appropriate, now, that is a different — and a much more interesting — discussion altogether.

Mohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reservedMohd Hafiz Noor Shams. Some rights reserved

[1]The overall housing loan approval rate remains high at 74.2% (average 2012-2016: 74.1%). The approval rate is the ratio of the number of housing loan applications approved by all banks in Malaysia to the number of housing loan applications received by the banks during the same period. In 1Q 2017, banks approved a total of RM22.3 billion of house fi nancing to 90,137 borrowers. Of these, more than half was for buyers of affordable housing units priced below RM500,000. [Lim Le Sze. Debunking the Myth: Property Measures Have Led to Higher Loan Rejection Rates. BNM Quarterly Bulletin. Bank Negara Malaysia. Accessed May 26 2017]

[2]See the BNM Monthly Statistical Bulletin.

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