BNM: Impaired loans level to remain stable in immediate term as banks facilitate repayment assistance

While it expects the impaired loans ratio to remain stable in the near term, BNM noted that banks continued to set aside additional provisions against potential credit losses, which currently stand at 1.8% of total banking system loans. (Photo by Zahid Izzani Mohd Said/The Edge)

While it expects the impaired loans ratio to remain stable in the near term, BNM noted that banks continued to set aside additional provisions against potential credit losses, which currently stand at 1.8% of total banking system loans. (Photo by Zahid Izzani Mohd Said/The Edge)

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KUALA LUMPUR (July 30): Bank Negara Malaysia (BNM) said the impaired loans ratio of the banking sector will remain broadly stable in the immediate term as banks continue to facilitate repayment assistance for viable borrowers facing temporary financial difficulties.

In its June 2021 monthly highlights, the central bank said the overall gross and net impaired loans ratios remained broadly unchanged at 1.6% and 1% respectively amid a marginal monthly increase in impairments.

While it expects the impaired loans ratio to remain stable in the near term, BNM noted that banks continued to set aside additional provisions against potential credit losses, which currently stand at 1.8% of total banking system loans.

The banking system continued to record a healthy liquid coverage ratio level, it said, adding that the banks’ funding profile also remained stable amid sustained growth in deposits.

Net financing growth moderated in June to 4.3%, versus 4.8% in May, reflecting declines in both outstanding loan growth and outstanding corporate bond growth.

Meanwhile, outstanding household loan growth moderated to 5.2% from 6.1% in the preceding month as loan disbursements declined, mainly for the purchase of passenger cars, residential property and credit cards.

However, outstanding business loan growth increased to 0.9% from 0.4% in May amid stronger working capital loan growth.

The central bank said the domestic financial markets were affected by both domestic and external factors in June as investor sentiments were affected by uncertainties surrounding the Covid-19 pandemic.

It added that the extension of stricter containment measures amid rising new Covid-19 cases in the country led to further concerns over the economic outlook and increased risk aversion towards domestic financial assets.

“Consequently, the FBM KLCI declined by 3.2% and the ringgit depreciated by 0.4% against the US dollar. Increased expectations of monetary policy tightening in the US also led to broad strengthening of the US dollar.

“The 10-year Malaysian Government Securities (MGS) yield increased by 4.7 basis points (bps) partly due to expectations of higher bond issuances following the announcement of additional fiscal support as domestic [new] Covid-19 cases rose in the second quarter of 2021 (2Q21),” said BNM.

On inflation, the central bank noted a decline in headline inflation to 3.4% in June from 4.4% in May due to lower inflation in the transport and food and non-alcoholic beverage categories.

Export growth moderated to 27.2% for the month from 47% in May, although BNM said it was still robust, reflecting broad-based strength across products and markets.

“Moving forward, the export performance will continue to be underpinned by a rebound in external demand and continued upcycle of global technology.

“In addition, strong demand for non-E&E (electrical and electronics) manufactured products and higher commodity prices will provide further impetus to export growth. Nonetheless, the trade outlook remains contingent on the path of the Covid-19 pandemic,” it said.

Surin Murugiah