Consumer Finances in Malaysia

Consumer finances in Malaysia is seeing a growth in 2017 as per Euromonitor’s report (Euromonitor International, 2017). According to the same report, the growth is mainly focusing on the categories such as auto loan, durables lending, education loans and mortgage despite having their own challenges in the economic circumstances as well as the increase in living cost. It is also found that the growth of this industry is mainly driven by the rapid increase of Malaysian youth from middle-income population who are eager in accumulating assets. In Malaysia, there are a few providers of consumer finances which include Maybank, CIMB and Hong Leong (Bank Negara Malaysia, 2017). This paper will be focusing on Hong Leong Bank to further illustrate the components to be discussed.

In this industry, the demands are driven by a few factors such as the income levels of the consumer and their savings levels. In cross sectional studies, the income levels will often be observed to be closely associated with the development of financial sector. This has then explained that the demands of financial services in terms of volume and sophistication are much greater within the community with higher income compared to those from lower income economies (Allen, 2013). Since savings culture is usually related to the robust demand for financial services, it is worth saying that the level of savings and the level of incomes are close connected. Standing on this concept, the share of consumption in income will usually have the tendencies of being much lower within higher income groups probably due to their transitional income is way higher than the lower income groups (Dick, 2002). As per the study by Ando (1963), the life cycle hypothesis holds the assumption that an individual’s prime earning years will always be the period where he/she will have the highest demand for banking services.

Based on such demands, the elasticity of the demands and supply is worth to be analysed for the banking or consumer finances industry. Elasticity refers to the responsiveness towards any changes in a certain variable to a change in another. There are three types of elasticity that can be associate with the consumer finance industry. The first elasticity is own-price elasticity. This type of elasticity helps to measure the responsiveness of the demands for any changes that occur in the