KUALA LUMPUR (May 12): Stage two loans, which exhibit higher risk loans and those on the verge of default, have declined, reflecting improving asset quality as borrowers are able to repay bank borrowings, said Bank Negara Malaysia Governor Tan Sri Nor Shamsiah Mohd Yunus.
“Stage two loans have been coming down, which means borrowers have been able to service their loans. And on top of that, when we look at some loan indicators, loan repayments have exceeded loan disbursements, not just by the households but also businesses,” she said at the 1Q2023 briefing on Friday (May 12).
She said overall stage two loans have declined to 5% in March 2023, reflecting borrowers that have resumed repayments after exiting repayment assistance programmes and maintained a consistent track record (at least six to twelve months) of repayments.
The Malaysian Financial Reporting Standards 9 (MFR9S) outlines a three-stage model for provision/impairment based on changes in credit quality since the day the loan was extended.
For accounts that fall under stage one, the bank has to provide 12-month forward-looking expected credit losses (ECL).
Twelve-month ECL are the expected credit losses that result from default events that are possible within 12 months after the reporting date.
Borrowers with a good credit risk profile usually fall under stage one, while for the stage two accounts, banks have to provide lifetime ECL.
Lifetime ECL are the expected credit losses that result from all possible default events over the expected life of the loan.
The stage two loans ratio was introduced with the implementation of MFRS9 standards beginning Jan 1, 2018.
The governor added that even with the recent Overnight Policy Rate (OPR) hike, loan repayment will not be impacted as most lower income households' loans are scheduled on a fixed rate basis.
“We have seen that the banks have been very forthcoming in giving repayment assistance, and coming up with a plan to suit each particular borrower.
This will be a win-win situation, for the bank and the borrower, if the borrower is able to pay the loan fully at the end,” the governor said.