KUALA LUMPUR (March 30): The quality of business borrowings has not shown significant deterioration, with the overall business loan impairment ratio remaining low at 2.4% in the second half of 2021 (2H21) thanks to support measures that remained in place, particularly for small and medium enterprises (SMEs), according to Bank Negara Malaysia (BNM).

In its Financial Stability Review (FSR) for 2H21, the central bank said loans with increased credit risk grew at a slower pace of 13.5% in 2021, compared with 36.4% in 2020, which reflected improvements despite banks’ leading indicators remaining elevated.

According to BNM, eight corporate bond issuers — or 0.7% of total outstanding domestic bonds in 2021 — were downgraded due to firm-specific vulnerabilities, compared to five issuers or 2.2% of total outstanding domestic bonds in 2020.

“Risks from non-financial corporates’ external debt also remained largely contained. Three-quarters of corporate external exposures are medium- to longer-term tenures and largely hedged against exchange rate volatility,” the FSR read.

BNM also highlighted that these measures taken by the corporates mitigate repayment, rollover and currency risks, with external debt-at-risk for corporates being trimmed to 6.6% of total corporate external debt in 2021, compared with 6.9% in 2020.

Moving forward, BNM expects an improvement in business conditions to further support asset quality as business sentiment had picked up towards the end of 2021 following the gradual easing of movement restrictions.

“Corporate default risk indicators have continued to improve (for the fourth quarter of 2021 [4Q21]: 0.224%; 2Q21: 0.396%; 4Q20: 0.787%),” it highlighted in the FSR.

The business sector outlook, however, remains subject to downside risks — including from the durability of the economic recovery amid developments surrounding the Covid-19 pandemic.

Read more stories from the BNM Annual Report 2021 here.