MALAYSIAN corporations are returning to profitability with a bang and it appears that now things can only get better. The impressive results turned in by Malaysian corporations is further proof that the economy is on the mend. The massive losses and red ink that was evident in the companies' balance sheets last year, as a result of the regional financial crisis, have largely been removed.

The billion ringgit profits posted by the country's highly diversified conglomerate, Sime Darby, and the country's largest bank, Malayan Banking, in addition to the profits posted by UEM, Public Bank and EON are indications that Malaysia's "unorthodox and controversial" policies are producing results. Sime Darby, which suffered a loss of RM541 million a year earlier, posted a pre-tax profit of RM1.02 billion and Maybank turned in a seven-fold increase in net profits at the bank level compared to the previous year and also recorded a group pre-tax profit of RM1.01 billion.

While in Sime Darby's case, the improved palm oil prices helped its bottom line, Maybank registered slower growth in its non-performing loans (NPLs) at both the group and bank levels. This is in line with the overall restructuring of the banking system. The NPLs within the banking system as a whole averages 12.7 per cent if the three month indicator is used and 7.9 per cent if it is calculated on a six month basis.

What is important is the fact that for both the three month and six month figures, the trend of NPLS is downwards and a marked improvement from the peak. This is a clear indicator that borrowers have started to service their loans and arrears - certainly a good sign for the banking sector.

It is also an indicator that the economic machinery is chugging forward again, that businesses are beginning to look up and there is greater confidence that the situation will improve further.

This is a welcome sign for the banking industry which was being burdened by bad debts and NPLs. However, even at the "height" of the crisis, Malaysia's banking sector continued to demonstrate its inherent strength. Its Risk Weighted Capital Ratio (RWCR) remained above the minimum 8 per cent requirement. It currently stands at 12.7 per cent.

The "feel good" factor and the smiles on the faces of many entrepreneurs and businessmen are being translated into actual sales and profits. In the second quarter of this year, private consumption rose 3 per cent on a year-on-year basis, the first year-on-year rise in six quarters. Analysts pointed out that increased consumer spending, which is boosting profits at the company-level, will speed the country's recovery from last year's recession - the worst in Malaysia's 42 years of independence.

Among others, the sales of new passenger cars are on the rise, including those of luxury cars. Auto Bavaria expects to sell 1,300 luxury cars this year, double that of last year. To date, it has already sold 700 units. Sales of commerical vehicles and motor cycles has also increased.

The demand for electricity is on the increase, the retrenchment of workers is down while the number of new companies being registered is on the increase. Industrial production rose 3.5 per cent in July, the first time in three months, to its highest level in 19 months, fuelled by an increase in Asian demand and orders from the US for computer chips.

While industrial proudction could have been fuelled by the electronics sector, it was further boosted by the increased output of construction goods, following higher Government spending on infrastructure.
The increase in the industrial output is yet another indicator that Malaysia has "left the recession behind", and in clearly on the road to recovery. The country's merchandise trade surplus rose in July to RM5.8 billion and it was the 21st consecutive month that exports have exceeded imports. The merchandise surplus was boosted by the export of electronic goods especially computers chips and disk drives.

Imports are on the rise, reflecting increased domestic demand. Rising domestic demand, an indicator of increased spending by consumers and businesses, will help propel economic growth.

The fact that the Japanese economy registered a positive growth of 0.2 per cent in the second quarter, the second consecutive quarter of positive growth, also means good news for the region and Malaysia. Japan is an important export market as well as a major foreign investor in Asian countries.

While the Malaysian Government is still sticking to its 1 per cent forecast for gross domestic product growth this year, a number of analysts have revised their forecasts upwards, ranging from 5 per cent to 6.5 per cent. The bullish forecasts are based on the fact that the Malaysian economic fundamentals, which remained in much better shape than its neighbours even during the worst of the crisis, have improved further. In addition, a pick up in the Japanese economy - which is technically out of the recesion with two consecutive quarters of positive growth - and an important export market, will help boost the export sector further and underpin the economic recovery already under way.