Using debt ratios to analyse companies

The debt measure ratios for five companies.

Name   Debt to OPCF   Debt/FCF   Interest Cover   Debt/Total Asset
A          7.8                     22.9                 1.8                 162.0%
B           0.2                      0.2             213.9                     6.7%
C           6.5                    47.9                 2.1                   43.3%
D           2.5                      4.1                 6.8                   44.3%
E           6.4                     39.1                 2.5                   58.1%


Company A
This company's debt would take nearly 23 years to pay back.  Debt/FCF = 22.9
Its profits cover its interest payments less than twice.  Interest cover = 1.8x.
This kind of situation represents a risk of going bankrupt if profits were to deteriorate.
This would be enough to put investors off buying its shares.

Company B
This company operates a chain of fast food pizza chain.
It has very low levels of debt on its balance sheet.  Debt/Total Asset = 6.7%.
It could repay all its borrowings in less than three months based on its current free cash flow - Debt/FCF = 0.2.
It has no problems paying the interest on it.  Interest cover is 213.9x.
This is a kind of company investors might want to own shares in.

Company C
This company is in the pub business.
Pub companies are frequently financed with high levels of debt.
These companies can also tend to be quite poor at producing lots of free cash flow, as they have to keep spending money to keep their pubs in good conditions. (Heavy capital expenditure).
This makes them quite risky investments for shareholders when times get tough and profits fall.
These companies are often forced to sell their assets - pubs - to repay debts.

Company E
This is a water company (utility company).
Water companies are financed with lots of debt.  Debt/Total Asset = 58.1%.
This is not usually a problem given that they have very stable and predictable profits and cash flows.
Water is not the kind of product that tends to see demand change if the economy changes.
However, if investors are building a portfolio of quality companies with high free cash flows and ROCE, then it is unlikely that they will own shares of water companies.
This is because the returns they can earn are capped by industry regulators, which means they have very low ROCE.

Company D 
This is a hotel chain company.
Its business is conservatively financed and meets investors' target debt criteria.

How to avoid bad investments?

Picking winning shares is something every investor naturally wants to do.

However, success in investing is just as much about avoiding bad investments and minimising the risks that you take with your money.

Investors spend too much time thinking about how much money they can potentially make from owning a share and not enough time thinking about how much money they could lose if things go wrong.

Avoiding bad investments is important because they are hard to recover from.  If you lose 50% of your money invested, you need to find an investment that will double in value just to get the value of your portfolio back to where it started.

The more bad investment you can avoid, the better your long-term investment performance is likely to be.



How do you stay away from bad investments?


1.   The first thing to do is to focus your investments on quality companies with the following characteristics:

• A consistent track record of increasing sales and profits.
• High returns on capital employed (ROCE).
• An ability to turn a high proportion of profits into free cash flow.

2.  Arguably, the biggest danger that shareholders face when investing in a business is the company's debt.  

The investor must learn how to analyse a company's debts and to distinguish between safe and dangerous companies.  

This will help the investor to stay away from risky investments that have the potential to damage his/her wealth.

Don't use the PE ratio

The price to earnings ratio (PE) s the most commonly used valuation yardstick by investors.

It is very easy to calculate.

PE ratio = share price / earnings per share (EPS)


In simple terms, shares with high PE ratios are seen as being expensive whilst those with low ones are seen as being cheaper.

Despite its simplicity, PE ratio has many pitfalls that can give investors a misleading view of how cheap or expensive some share really are.

The PE ratio's drawbacks are all to do with the "E" or EPS, part of the calculation


1.  EPS is easy to manipulate.

Companies can boost EPS by changing accounting policies.

For example, they can extend the useful lives of fixed assets such as plant and machinery, which lowers the depreciation expense and boosts profits.

2.  EPS says nothing about the quality of profits.

It doesn't take into account whether profits have changed due to sales of existing products or services - the best source of profits growth - or whether the company has invested heavily in new assets or bought another company (acquisition).

Share buybacks boost EPS by shrinking the number of shares outstanding, even if profits are static or shrinking.  Buyback can be done when the shares are expensive.  By paying too much, a large chunk of shareholder value is destroyed; the cash spent is wasted.

3.  EPS may not resemble true cash profits.

Quite often a company's true cash profits are significantly more or less than its EPS (more often less).

4.  EPS may be based on profits that are unsustainably high or temporarily low.

This means that the PE ratio could be misleadingly low or high.  

This is a particular problem for cyclical companies.



Summary:

For the above reasons, EPS can be unreliable and you should not rely on PE alone.

Once again, PE has may pitfalls that can give investors a misleading view of how cheap or expensive some shares really are.

Forget Profit, Cash Flow is King

Oct. 5, 2011 1:24 a.m. ET

Forget About Profit,

Cash Flow Is King

In the second quarter of 2011, nonfinancial companies in the Standard & Poor's 500-stock index generated $158 billion in cash flow from their operations after accounting for capital spending, a 13.6% increase from a year earlier, according to data gathered by S&P Capital IQ.

The figure also represents a 60.4% increase from the first quarter of 2009, a recent low, as companies navigated the depths of the recession.

That improvement is a testament to the pains U.S. companies have been taking to ensure their cash is coming in more quickly than it's going out.

The ability to generate cash may be the most important measure of a business's health.

Plenty of companies with paper profits have failed because they lacked the cash to keep operating.

At the most basic level, companies improve cash flow by collecting receivables more quickly and paying bills more slowly. If money is going out faster than it's coming in, a company must find a way to fund operations for those days in between.

The choices include cash on hand, bank financing or funds raised in the capital markets. The recent credit crunch threatened to stall even profitable companies because it left the latter two options so badly impaired.

One advantage to tracking cash flow from operations is that it has a clear accounting definition. That means it can be compared on an apples-to-apples basis from company to company.

Cash flow can also serve as the basis for calculating the corporate equivalent of disposable income. Subtracting capital expenditures—or critical investments in things like plants and machinery—from a company's cash flow shows how much of its resources are left available for such purposes as paying dividends, financing buybacks, making acquisition or funding other investments. 

— Matthew Quinn

https://www.wsj.com/articles/SB10001424052970204524604576609740825745286

Good Investing - Buy great companies at reasonable prices and holding them for the long term

Being able to think independently is the best way to invest successfully.

There are two ways to value investing.

1.  Graham type value investing (Classic Value Investing).

One approach involves buying shares in beaten-up companies whose share prices had become depressed and looked cheap.

Occasionally, some investments would pay off, but more often than not they didn't.

These shares can be cheap for a reason; they are shares of bad or mediocre companies.

You are unlikely to get a great tasting wine when you buy a cheap bottle of wine.

2.  Buying growing high quality companies at reasonable prices  (Growth Investing)

The better investing is about investing in great companies buy buying their shares at reasonable prices and holding on to them for a long time.

Great companies generate high levels of profits or cash flows on the money they invest.

The investor's job is to buy the shares of these companies when their share prices offer you an acceptable return on your investment.

Combining quality companies and a reasonable purchase price, and adding in the factor of time, put one well on the way to a successful investing career.


Portfolio Management

You do not need to know everything about a company to be a successful investor.

In fact, too much information can be bad for you.

If you have a company's latest annual report and its current share price you have all the information you need to invest profitably.

From this information, you can work out

• whether the company is good or bad, (Is it a quality business?)
• whether it is safe or dangerous,  (Is it a safe business? ) and 
• whether its shares are cheap or expensive. (Are its shares cheap enough - are they good value?)

The investor armed with annual reports and a thorough approach, can gain an advantage over many analysts.

Doing in-depth analysis for companies you are considering as investments will empower you with knowledge and understanding about a company which less diligent investors will not be aware of.

Investors do not need to own lots of companies.

A portfolio of 10 to 15 companies spread across different industries is sufficient to get good, diversified investment results.

You must be confident in trusting your own judgement whilst ignoring the huge amount of noise and chatter that goes on in the investing world.

Paying the right price is just as important as finding a high-quality and safe company. Don't be too mean either lest you miss out on some very good investments.

Most people lose money in the stock market because:

1. they buy stocks that are of poor quality, and,
2. they overpay for these stocks.

Paying the right price is just as important as finding a high-quality and safe company

If you are to be a successful investor in shares, you need to pay particular attention to the price you pay for them.

The biggest risk you face is paying too much.

It is important to remember that no matter how good a company is, its shares are not a buy at any price.

Paying the right price is just as important as finding a high-quality and safe company.  

Overpaying for a share makes your investment less safe and exposes you to the risk of losing money.



Be careful, don't be too mean with the price

Be careful not to be too mean with the price you are prepared to  pay for a share.

Obviously you want to buy a share as cheaply as possible, but bear in mind that you usually have to pay up for quality.

Waiting to buy quality shares for very cheap prices may mean that you end up missing out on some very good investments.

Some shares can take years to become cheap and many never do.



Additional notes:

Can quality be more important than price?

1.  Paying too much for a share can result in disappointing returns.  No company, no matter how good, is a buy at any price.

2.   You need to know how to work out how much to pay for the shares of quality companies.  Bear in mind share valuation is not an exact science.  Your valuation will never be exactly right, but by setting yourself some limits, you can reduce the risks that come from overpaying for shares.

3.  There is some evidence to suggest that paying what might seem to be a moderately expensive price (slightly more than the suggested maximum) for a quality business can still pay off in the long run.  The caveat here is that you have to be prepared to own shares for a very long time.  Perhaps, forever.


 How is the way people invest changing?

1.  Many people are not building a portfolio of shares during their working lives  to cash in when they retire.  An increasing number will have a portfolio that may remain invested for the rest of their lives.

2.  For them, a portfolio of high-quality shares of durable companies may help provide them with a comfortable standard of living, with the initial price paid for the shares not being too big a consideration.

3.  Despite trying to put a precise value on a share, we have to remember that the shares of high-quality businesses are scarce.  This scarcity has a value and might men that investors undervalue the long-term value of them.

4.  The ability of high-quality companies to earn high returns on capital for a long time can create fabulous wealth for their shareholders.  This is essentially how investors such as Warren Buffett have built their fortune.

U.K. Prime Minister Theresa May's disastrous visit to the Grenfell Tower fire site.

Having visited the Grenfell Tower fire site and not meeting with the residents who were affected, this is surely a big disastrous outing for the P.M. of UK.

Hope she makes another visit soon to remedy this poorly thought-out initial visit.

Fundamental Principles of Value Creation

Ranking the Types of Growth that create value:

1.  Introducing new products to market
2.  Expanding an existing market
3.  Increasing share in a growing market
4.  Acquiring businesses.


High ROIC companies typically create more value by focusing on growth, while lower ROIC companies create more value by increasing ROIC.

Most often in mature companies, a low ROIC indicates

• a flawed business model or 
• unattractive industry structure.

Earnings and cash flow are often correlated, but earnings don't tell the whole story of value creation, and focusing too much on earnings or earnings growth can lead to straying away from the value-creating path.

When ROIC is greater than the cost of capital, the relationship between growth and value is positive.

When ROIC is less than the cost of capital, the relationship between growth and value is negative. 

When ROIC equals the cost of capital, the relationship between growth and value is zero.


With respect to countries, the core valuation principle is applicable, as made evident by the fact that U.S. companies trade at higher multiples than companies in other countries.

When comparing the effect of an increase in growth on a high ROIC company and a low ROIC company, a 1 % increase in growth will have a higher positive effect on the high ROIC company.

At high levels of ROIC, improving ROIC by increasing margins will create much more value than an equivalent ROIC increase by improving capital productivity.

Economic profit is the spread between the return on invested capital and the cost of capital times the amount of invested capital.



Investment rate = Growth / ROIC.   If the growth of a company is 2% and the ROIC is 10%, its investment rate is 20%.


Key Value Driver formula:

Value = NOPLAT * (1 - growth/ROIC) / WACC - growth

For a given company, given:

its next year's NOPLAT is $300
and for the foreseeable future

• its growth rate will be 5%, 
• the ROIC will be 15% and
• the weighted average cost of capital (WACC) will be 13%.

Using the key driver formula, the Value of the Company is:

= $300 * ( 1 - 5%/15%) / 13% - 5%
= $300 * (1/3) / 8%
= $200 / 8%
= $2,500

Recognising Real Value Creation

Data from both Europe and the United States found that companies that created the most shareholder value showed stronger employment growth.

In the past 30 years, there have been at least 6 financial crises that arose largely because companies and banks were financing illiquid assets with short-term debt.

Two activities that managers often use in an attempt to increase share price but that do not actually create value are 

• changes in capital structure (or financing of the firm) and 
• changes in accounting practices.

Maximising current share price is not equivalent to maximising long-term value because managers, who know more than shareholders about the firm's prospects, could slash crucial expenses to improve the stock price in the short term.  Eventually, this will catch up to the firm, and the long term stock price will suffer.

During the Internet boom of the late 1990s, many firms lost sight of value creation principles by blindly getting bigger without maintaining a competitive advantage.

Beware of money scams

 May 28, 2017, Sunday Ronnie Teo ronnieteo@theborneopost.com

KUCHING: Time and again, we hear stories of friends or family members losing their life savings to con men, money scams or investment schemes promising elaborate returns of money.

The recent spate involving JJ Poor to Rich (JJPTR) is the latest in a string of such scams.

The scheme was thrust into the limelight after it claimed last month that its funds were siphoned off by ‘hackers’, resulting in the alleged loss of over US$50 million or RM217 million.

Investors had gone knocking on JJPTR’s doors when their 20 per cent monthly returns were not banked into their accounts last month.

On April 27, the company promised to refund all investment funds collected from its 31,000 members.

Its founder, Johnson Lee said this was made possible through the injection of capital by a new pool of foreign investors. He said refunds would be given to those who had just sent in their initial investment capital as well.

However, following the arrest of Lee and two of his key associates, everything came to a full stop as to its business operations as of May 16 this month. They were nabbed to facilitate investigations under Section 420 of the Penal Code for cheating.

Lee and his associates were arrested by federal police from the Commercial Crimes Investigation Department in Kuala Lumpur and Klang, with police confirming that five of the JJPTR bank accounts were also frozen.

After weeks of posting regular updates to reassure investors – including videos from Lee and presentations of a new plan – it was discovered that two JJPTR FB pages have now been deactivated, while other pages have not been updated since.

This case brought to light the issue Malaysia faces: why are its citizens so gullible to fall for such scams?

Lack of financial awareness

Financial experts cite a lack of financial awareness as a reason to why consumers continue to become victims.

iMoney Group chief executive officer and co-founder Lee Ching Wei told BizHive Weekly that it all boils down to lack of financial literacy and also herd mentality.

“Just because a lot of your friends or family members are investing in something doesn’t mean it is a sound investment,” he said in an interview.

“People tend to take shortcut in their investment –- they want to see huge returns without doing their due diligence. Unfortunately, that’s not how investment works.

“You may get lucky once or twice, but you won’t be lucky every time.”

On this note, Bank Negara Malaysia Governor Datuk Muhammad Ibrahim earlier this year affirmed that the pursuit of financial knowledge is a key economic imperative encouraged by the central bank.

“In today’s world, the ability and knowledge to save, invest and borrow are essential life skills, be it for individuals or businesses. Various efforts have been undertaken to improve financial inclusion in Malaysia.

“While results are promising, our efforts in achieving financial inclusion need to be further intensified.”

Ibrahim said there remain gaps in access to financing for certain segments of society.

Examples of the common issues faced by consumers include:

1. Misrepresentation or mis-selling of financial products, including incidences of product pushing;

2. Disputes on interest rates, loan balances or settlement of insurance claims due to the lack of transparency and understanding in relation to the terms and conditions, or contract ‘fine print’;

3. The lack of capacity and poor discipline in financial management, resulting in high household indebtedness.

4. The measures taken to overcome financial difficulties

“From the aspect of consumer protection, the Bank continues to devote efforts towards strengthening trustworthy and user-friendly redress mechanisms through the Financial Ombudsman Scheme, in addition to strengthening policies on market conduct of financial institutions to ensure fair dealings to consumers,” the governor continued.

“The Bank will also continue to accelerate initiatives on financial literacy to ensure that the financial advisory services provided by financial institutions, Laman Informasi Nasihat dan Khidmat (LINK) and the Credit Counselling and Debt Management Agency (AKPK) will continue to enhance the overall skills and knowledge in finance.

“Various initiatives are also being undertaken at the school and university level, as well as targeted and high-impact financial education programmes catered towards teenagers and adults by AKPK.”

Protecting consumers from traps

On the other end of the spectrum, government bodies and associations are consistently active in ensuring consumers are aware and well-prepared to avoid such traps.

Bank Negara Malaysia is proactive in protecting consumers in this regard. They periodically update a list of unauthorised companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM.

The latest list consists of 302 companies and is consistently updated, with the latest as early as this week.

BNM also said the list of companies and websites is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM.

“The list will be updated regularly for public’s reference,” it said.

Only financial institutions – that is banks, insurance companies and takaful operators as well as money changers, remittance service providers and currency wholesalers licensed by BNM under the relevant laws and regulations administered by BNM – are allowed to provide financial services in Malaysia.

Bank Negara on a website dedicated to fraud alerts warn consumers of several ways scammers search for victims.

“Financial scams target people of all backgrounds, ages and income levels. Fake lotteries, advance-fee frauds, get-rich-quick schemes and internet investment schemes are some of the favoured means of separating the unwary from their hard-earned savings.

“New varieties of these scams appear all the time. Despite the on-going awareness programmes by the relevant authorities and media coverage on the plight of victims of financial fraud, many are still knowingly or unknowingly falling prey to the activities of fraudsters.

“One of the best ways to combat this financial fraud is through prevention.”

Bank Negara Malaysia will continue to work with the relevant authorities and regulatory agencies towards clamping down on the activities of financial fraudsters and promote consumer awareness on illegal financial schemes.

The credit card conundrum

One cannot talk about money scams without covering credit cards, being an easy target for scammers.

And with Malaysia moving forward with contactless card updates, digital transactions and cashless withdrawals, it is pertinent to stay vigilant of  scams of this manner.

According to iMoney’s chief Lee, there are about 9.3 million credit cards in circulation in Malaysia as of last year, with total transaction value amounting to a whopping RM118.5 billion.

Authorities are heightening security for credit and debit card usage in Malaysia by replacing the signature-based system with the personal identification number (PIN) verification.

Merchant payment terminals are also to be upgraded to accommodate the new security-enhanced system.

The migration to PIN from signature, which has started since last year, is part of a worldwide shift that has been implemented in Europe, Canada, Australia and New Zealand, with the Middle East also making the similar move.

Currently, all locally-issued credit cards have been replaced with those requiring personal identification numbers (PIN), according to BNM.

A total of 96.1 per cent of debit cards have been replaced while 99.8 per cent of point-of-sale terminals have been upgraded ahead of the July 1 deadline when signature authorisations will no longer be accepted.

“No extension will be granted,” BNM governor Datuk Muhammad Ibrahim told reporters while announcing Malaysia’s GDP for the first quarter of 2017 last week.

With just nearly 40 days left, Muhammad Ibrahim told the public to contact their issuing banks if they have not replaced their cards.

Contactless cards more secure than you think

As Malaysians move towards becoming a cashless society, consumers should opt for innovative payment methods which are convenient, speedy and secured, especially for purchases costing RM250 and under.

However, rumor mongers are active in spreading fear of using these cards, sharing horror stories of its misuse.

The Association of Banks in Malaysia (ABM) highlighted that contactless payment cards are “more secure than you think”, debunking several myths out there surrounding said cards.

“We wish to provide clarification regarding a video posting featuring “electronic pick-pocketing” of contactless payment cards which has caused come concerns over the security of such payment methods,” it said in a statement.

“ABM would like to highlight that the video, which we are given to understand, is several years old, was thought to have been made in the US where many contactless cards are/were still using magnetic stripes.

“While it is possible to build a scanner that can read certain information from payment cards using magnetic stripes, this technology will not work on cards which are using an Europay, MasterCard and Visa (EMV) chip.”

To note, EMV is a global specification for bank chip cards which prevents the cloning of cards. An EMV chip helps to reduce fraud as it is very difficult and costly to counterfeit.

When a transaction is performed by reading the EMV chip, a unique one-time cryptogram is produced which must then be validated for the transaction to be approved.

“The chip contains a secret unique cryptographic key, and unless that key can be extracted, it is not possible to copy or clone the chip,” ABM highlighted.

“More importantly, it should also be noted that it is not possible to build a regular magnetic stripe card from this captured data due to a magnetic stripe protection mechanism.”

Malaysia completed its migration to EMV chip cards by the end of 2004. Currently, all contactless payment cards issued in Malaysia have an EMV chip, therefore significantly reducing incidents of fraud, ABM stated.

“It is therefore not valid to cite a US example as proof that Malaysian cards are at risk,” it added.

To note, the US is still using the old signature-verified system for its credit cards.

“We would also note that Malaysia adopts a more secure payment verification method for internet transactions. To guarantee the security of each transaction, cardholders are required to enter a transaction authorization code (TAC) that is sent to their mobile phone or a card holder security device.

“In the event the card details have been fraudulently used for a transaction on an overseas website which has not implemented a secure payment verification method, the Malaysian cardholder will be protected by liability shift rules.

“These rules are imposed by the international card schemes which require overseas retailers to bear the liability of such fraudulent transactions.”

‘Maximum limit can be set’

The ABM has also clarified that card issuers may set a maximum amount for each contactless transaction as well as an appropriate cumulative limit for contactless transactions which do not entail any cardholder verification.

“Debit cardholders can also ask the card issuer to change the maximum amount for contactless transactions or switch off the contactless functionality for their debit cards,” it said in another statement. “Debit cardholders may check with their card issuers on how this can be done.

“We would like to remind all cardholders that they are responsible to safeguard their payment cards. It is the cardholder’s responsibility to notify their card issuer as soon as reasonably practicable in the event of loss/stolen or unauthorized use of their payment card.

“In the event a payment card is lost or stolen, the card issuer may excuse the cardholder from liability for unauthorised transactions made using the said card.

“This is provided the card issuer is satisfied that the cardholder has taken all reasonable precautions and diligence to prevent such loss or theft, and notified the card issuer promptly once the loss was discovered.”

Types of money-related scams

Illegal Foreign Exchange Trading Scheme

Illegal Foreign Exchange Trading Scheme refers to the buying or selling of foreign currency by an individual or company in Malaysia with any person who is not a licensed onshore bank or any person who has not obtained the approval of Bank Negara Malaysia under the Financial Services Act 2013 or Islamic Financial Services Act 2013.

This scheme involves the act of buying or borrowing foreign currencies from or selling or lending foreign currencies to a non-licensed onshore bank.

It can also be in the situation where the non-licensed onshore bank does an act that involves, is in association with, or is preparatory to, buying or borrowing foreign currencies from, or selling or lending foreign currencies to, any person outside Malaysia.

Unauthorised Withdrawals

Unauthorised Withdrawal involves the withdrawal or transfer of funds from an individual’s banking account without proper authorisation or consent by the individual.

Such incidents are normally the result of an individual knowingly, or unknowingly, divulging their personal information such as personal identification numbers (PIN) and password to fraudulent or third parties.

Based on investigations, many cases were due to customers knowingly or unknowingly divulging their personal information such as personal identification numbers (PIN) and passwords to third parties or fraudulent parties.

The transactions involved were genuine, using complainants’ account information and followed the required process. CCTV recordings had captured the complainants activating access to Internet banking at ATMs.

Most complainants were not Internet savvy and failed to understand that their own actions had led to the fraudulent withdrawal of funds from their accounts.

Forex Scams

Forex scams usually come in the form of ‘forex brokers’ soliciting investments with guaranteed high returns. Some investors were even promised up to 250 per cent returns.

According to Bank Negara’s definition, forex schemes is any individual or company that is buying and selling foreign currency without a license, or without approval from the central bank. If it’s not licensed or approved by BNM, it is best to stay away from such investment, be it forex trading or gold investment.

Ponzi Schemes

Ponzi schemes are similar to pyramid schemes.

This usually involves recruiting new members or investors.

Typically, each member is required to pay a membership fee, and the fees will be used to pay the earlier investors.

The cycle goes on until there isn’t enough money to go around anymore, and the scheme would start to crack.

Money games

Money games is run similarly to a pyramid scheme too. You are paid to recruit down lines, and you are typically promised that you will get back your investment capital within a few months and start seeing profit thereafter.

These are usually disguised as legitimate investment in forex, shares, commodities or even real estate.

Misuse of Bank Negara M’sia and senior officers’ and positions

The fraudulent use of Bank Negara Malaysia’s name, corporate logo as well as Senior Officers’ names and positions by fraudsters in illegal schemes or fraudulent activities in order to mislead members of the public.

The illegal schemes or fraudulent activities may be promoted through emails, letters, phone calls or other forms of communication.

Caller ID spoofing

Certain banks see their general line numbers being used by unauthorized parties to trick unsuspecting customers into providing their personal information with intention to cheat. The phone numbers used are exactly or very similar to the Bank’s contact number.

Based on complaints received, calls are mostly related to credit card transactions.

Examples include collection of payment overdue, verification of transaction done at a location where the customer may not reside or a transaction that is not performed, uncollected credit card, or so on.

Illegal Deposit Taking

Illegal Deposit Taking is an act of receiving, taking or accepting of deposits from members of the public that promises a repayment with interest or returns in money or money’s worth without a valid license under the Banking and Financial Institutions Act 1989 (BAFIA).

The operators of the ‘illegal deposit taking’ schemes have no valid licence to collect deposits and exploit the basic human tendency towards greed.

The operator promises very high returns on investment.

Unauthorised Use of Credit or Debit Card

Unauthorised Use of Credit or Debit Card is a transaction involving the charging of expenses/purchase of goods and services without the consent of the cardholder.

Such transactions may occur as a consequence of credit or debit cards that are lost, stolen, not received, issued on a fraudulent application, counterfeit or other fraudulent conditions as defined by the credit or debit card issuer.

Fraudsters are no longer just using SMS to elicit contact with unwary members of the public in an effort to extract personal banking information for unlawful purposes.

Illegal Internet Investment Scheme

Illegal Internet Investment Scheme is a variation of illegal deposit taking activities which employs the use of internet – such as through emails and websites – as a primary channel for interaction, communication and transaction of business engaged in fund management and investment advice without any licence.

Illegal investment schemes are those companies or individuals that are dealing in securities, trading in future contracts, and providing fund management services and investment advice and related to securities or futures without being licensed by the Securities Commission under the Capital Markets & Services Act 2007.

Protecting yourself as consumers

As scams grow increasingly sophisticated in an attempt to obtain your money or personal details, it remains crucial that consumers protect themselves by staying alert.

BNM  views illegal financial schemes very seriously and will not hesitate to enforce the law against the perpetrators and promoters of such schemes.

“The wrongdoers will face the full brunt of the law, including laws administered by Bank Negara Malaysia, the Penal Code, the Interest Schemes Act 2016, the Direct Sales and Anti-Pyramid Scheme Act 1993 as well as the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001,” it said.

Under the law, action can also be taken against investors who knowingly promote and participate in these illegal schemes.

To this end, BNM said a joint enforcement action on any financial fraud and scams will be pursued by an inter-agency initiative led by the Attorney General Chambers under the National Coordination Committee to Counter Money Laundering.

“BNM would like to caution members of the public not to participate in schemes that promise unrealistically high returns, interest rates or profits.

“Members of the public should ensure that they do not fall prey to these schemes by referring to Bank Negara Malaysia’s Financial Consumer Alert which lists companies that are neither authorised nor approved under the relevant laws and regulations administered by the Central Bank. It also provides information on the common features of illegal financial schemes.”

Financial institutions (FIs) and money services business providers have been directed by BNM to heighten their vigilance in detecting the accounts which are used by the perpetrators of financial scams and to further enhance their customer due diligence (CDD) policies and processes in identifying suspicious transactions and fund flows between bank accounts so as to prevent FIs from becoming conduits that facilitate such illegal schemes.

BNM and SC also reminded consumers to always verify the legitimacy of schemes which offer too-good-to-be-true returns or investment opportunities involving above-market rates of return and zero to low risk.

“They must obtain all relevant information before parting with their money. When in doubt, the public should check with Bank Negara Malaysia, the Securities Commission or other relevant authorities on the licensing status of the local and foreign company before depositing their money or making any investment decision.

“Members of the public are also advised to alert the authorities immediately if they come across any suspicious websites, e-mails or any information on the Internet relating to investment advice and services and deposit taking activities.”

‘Be wary when investing’

Apart from the usual advice of ‘know who you’re talking to’ and ‘avoid opening suspicious texts links and emails’, iMoney’s Lee extolled the virtue of being careful in investing your finances, following the numbers reports of credit card scam reports involving hundreds and thousands of ringgit.

“Always check and double check the sources that you are receiving your credit card information. Banks will never ask you for your credit card details over the phone, SMS or email,” he added. “If you do receive such a message or call, do not respond or reply and simply call the bank to verify.

“Only use your credit card on secure Internet connection and on secure and reputable websites or apps.”

Meanwhile, when looking out for a new investment option, Lee said key signs to look out for in terms of gauging credibility is to spot “guaranteed returns”.

“There is no guaranteed returns in investment,” he affirmed.”The second sign to look out for is the percentage of returns.

“If you are getting guaranteed returns at 15 per cent to 20 per cent — it is obviously not sustainable. If it’s too good to be true, it usually is.

“If you are unsure, always look up the company on Bank Negara or Securities Commission’s websites and see if the company is in the alert list or if it is licensed.

“Lastly, do your due diligence and try to understand how the investment works. How do they use your money to make more money? Do not invest in something you do not understand.”

To those who have fallen into such scams, Lee said it would be wise to “cut your losses and seek help from the authorities.”

“Blind trust or loyalty does not bode well in this situation,” he went on to add. “Never put all your eggs into one basket. If you are investing in something, legit or otherwise, you should never put all your money into one investment.

“If something that is out of the ordinary and not regulated by regulatory bodies, it is usually high risk. Hence, you should proceed with caution and not put too much money into the said investment.”

http://www.theborneopost.com/2017/05/28/beware-of-money-scams/