“Eeny, Meeny, Miny, Mo...” A study of loan repayment patterns in relation to selected economic indicators: Q2 2006 to Q3 2008

• Main Author: Kechik, Ahmad Latfi
• Format: Monograph
• Language: English
• Published: Universiti Utara Malaysia 2009
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/2458/1/Loan_Repayment_Patterns_in_Relation_to_Selected_Economic_Indicators.pdf; http://repo.uum.edu.my/2458/

This paper aims to explore whether there are significant relationships between repayments for various types of loans to the economic cycle. Faced with a diminishing ability to pay, which loans would a borrower choose to continue to repay? In theory,several possible factors are discussed, including the cost of default, ability to pay and cost of living. Quarterly repayment data from Bank Negara Malaysia (BNM) for eight major types of loans were tested for correlation against the Gross Domestic Product (GDP), Consumer Price Index (CPI), and Broad Money Supply (M3). Results show significant positive correlations exist between total loan repayments, repayments for personal consumption, credit cards and working capital against the GDP, CPI and M3.On the other hand, repayment of loans for other purposes shows significant negative correlation against the three indicators. Interestingly, repayment for the purchase of transport vehicles shows significant positive correlations with the CPI and M3, but not the GDP. In conclusion, it is hoped that patterns revealed by the results of this study would serve as a useful guide to both the financiers and the borrowers alike in planning and allocating their resources more efficiently and effectively in relation to the economic cycle.