KUALA LUMPUR (Feb 11): Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus said on Friday (Feb 11) the central bank expects the risk of non-performing loans (NPLs) among banks in Malaysia to be manageable because the financial services providers had built up substantial provisions to mitigate the impact of Covid-19 pandemic-driven bad debt.
She added that BNM expects the banks to maintain their provisions for 2022 as a buffer against potential credit losses due to bad debt involving borrowers who are unable to repay their loans.
Speaking on Friday at a virtual press conference in conjunction with the announcement of Malaysia's fourth quarter of 2021 (4Q21) and full-year economic performance, Nor Shamsiah pointed out that BNM in 2021 published results of its Malaysian banking-sector stress test, which was done under a "very adverse scenario".
“We projected impairments to go up potentially to 5.4% of total banking system loans and that even under that scenario, we [would] expect the banking system capital ratios to remain comfortably above regulatory minimums,” she noted.
BNM said in a statement on Friday that the country's 4Q21 net financing to the private sector increased 4.7% from a year earlier due mainly to a higher outstanding loan growth of 4.4% as economic activity picked up.
"Outstanding household loan growth grew by 4.2% (3Q21: 3.2%), with higher growth across most loan purposes. Loan applications and disbursements were substantially higher following the easing of movement restrictions, particularly for purchasing houses and passenger cars.
"For businesses, outstanding loan growth increased to 4.8% (3Q21: 2.4%) and continued to be driven by higher working capital loans," the central bank added.
At the press conference, Nor Shamsiah said that as pandemic-driven loan repayment assistance programmes progressively come to an end, banks are also increasingly engaging borrowers, so that financial services providers would have more visibility into borrowers' creditworthiness.
Having such visibility will ensure that the banks' provision levels remain adequate to mitigate the impact of pandemic-driven bad debt, according to her.
She said the banks continued to put in place ongoing loan restructuring programmes to help borrowers facing financial difficulties.
The Financial Management and Resilience Programme, which is also known as Program Pengurusan dan Ketahanan Kewangan (URUS), is one example of such programmes.
On Oct 14, 2021, BNM said in a statement that URUS will assist bottom 50% income group (B50) borrowers with performing loans who had lost their jobs or who were experiencing an income loss of at least 50%.
"Eligible borrowers who wish to apply for URUS can approach their banks starting from Nov 15, 2021 to Jan 31, 2022," the central bank said then.
It was subsequently reported that the URUS application deadline was extended from Jan 31 to March 31, 2022.
At the press conference on Friday, Nor Shamsiah also said the URUS application deadline extension took into account the recent floods, which affected many households and businesses, and difficulties faced by some borrowers even though most businesses had resumed activities and the job market is improving.
“Recognising that affected borrowers may need more time to get back on their feet, the banking industry extended the application period to ensure that support continues to be available to such borrowers," she explained.
As the economy begins to recover, she said it is also important for Malaysians to shift their focus towards implementing the necessary reforms to raise productivity and income.
“We cannot afford to miss the boat," she added.
"This is where we need to coordinate efforts between the public and private sectors to improve the prospect of success of these [post-pandemic] opportunities.
"With this, we can then deliver quality jobs and households. [We] can then steadily build up the financial buffers and resilience over time,” she explained.