Friday 29 Mar 2024
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KUALA LUMPUR (Feb 5): Malaysia’s impaired loans were creeping up every month in the fourth quarter of 2020 after the blanket loan moratorium ended on Sept 30.

The amount of non-performing loans (NPLs) reached a nine-year high of RM28.7 billion at end-2020, according to the latest data from Bank Negara Malaysia (BNM).

From RM24.9 billion in September, total impaired loans rose to RM25.7 billion in October and subsequently to RM27.8 billion and RM28.7 billion in November and December respectively. The last time impaired loans reached this level was in 2011.

More importantly, the percentage ratio of net impaired loans to net total loans also rose in tandem during the period. From 0.84% in September, the ratio climbed to 0.87% in October, 0.95% in November and 0.99% in December.

Gross impaired loans ratio continued to inch upwards to 1.6% in December from 1.5% in November, returning to levels comparable to 2019, BNM noted in its monthly highlights report.

A closer look into the breakdown of total impaired loans revealed that both the household sector and sector of wholesale & retail trade, and restaurants & hotels saw noticeable upward trends from October to December after the blanket loan moratorium ended in September.

SERC executive director Lee Heng Guie explained that the rising NPLs were due to unemployment and loss of income for households, which have impaired their ability to service loan commitments, especially for those highly-indebted individuals.

As for business borrowers, the loss in revenue and shutting down of businesses also contributed to the default of loan repayment. “Some have restructured their loan commitment, but the multiple loans commitment compelled the borrowers to reprioritize their debt service payments,” Lee told The Edge.

Even as the blanket moratorium ended and most borrowers resumed loan repayments, a target repayment assistance was offered to selected groups of people until June 30, 2021.

Nevertheless, the moratorium in general delayed the recognition of impairments by banks and therefore the high impaired loans reported subsequently are possibly due to the lag, noted one analyst who declined to be named.

UOB Malaysia economist Julia Goh acknowledged that NPLs have inched higher since loan repayments started in October last year.

“I believe that uncertainty with regards to the economic recovery, and tightening of containment measures as well as Movement Control Order (MCO) are also the added factors, particularly for the tourism-related, retail and recreational sectors,” she told The Edge.

As it is, BNM had earlier cautioned in its Financial Stability Review that overall impairments could rise to above 4% of loans by the end of 2021, mainly driven by the business segment, as a result of economic and financial shocks from the Covid-19 pandemic.

BNM said this based on a conducted macro stress test which took into account effects of the blanket moratorium implemented in April last year and subsequent targeted repayment assistance for individuals announced by banks in August.

Rising impaired loans may seem to paint a bleak picture of the economic recovery, however banks should be able to withstand the present shocks as most parameters — the level of capitalisation and liquidity — have been kept at more than the minimum prescribed level, Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd commented.

“Obviously, the economic recession that happened last year has an immediate impact on banks’ asset quality and banks are mostly aware of this situation.

“It is well understood that the relationship between economic growth and impaired financing are inversely related. So the situation has been reflected in our scenario building and all the trigger points and possible vulnerabilities will be looked into,” he told The Edge.

Still, a slower pace of recovery and ongoing labour market challenges could likely put more pressure on loan impairments, UOB’s Goh pointed out.

BNM said banks continued to set aside additional provisions as a precaution against future credit losses with the total provisions to total loans ratio increasing to 1.7% in December from 1.6% in November.

“Borrowers that remain affected by the challenging conditions continue to receive needed support from banks, through targeted repayment assistance,” it said.

Edited ByKathy Fong
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