Bad loans hit nine-year high

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KUALA LUMPUR (February 5): Malaysia’s problem loans increased monthly in the fourth quarter of 2020 after the end of the general loan moratorium on September 30.

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

From RM24.9 billion in September, total impaired loans increased to RM25.7 billion in October and then 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 total net loans also increased in parallel during the period. From 0.84% ​​in September, the ratio rose to 0.87% in October, 0.95% in November and 0.99% in December.

The gross impaired loan ratio continued to rise slightly 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 at the breakdown of total impaired loans revealed that the household sector and the wholesale and retail sector, as well as restaurants and hotels experienced notable upward trends from October to December. after the general lending moratorium ended in September.

SERC Executive Director Lee Heng Guie explained that the increase in NPLs was due to unemployment and the loss of household income, which affected their ability to meet their loan commitments, especially for the highly vulnerable. in debt.

On the corporate borrower side, loss of revenue and business closures also contributed to loan defaults. “Some have restructured their loan commitment, but the multiple loan commitment has forced borrowers to reprioritize their debt service payments,” Lee told The Edge.

Even when the general moratorium ended and most borrowers resumed loan repayments, target repayment assistance was offered to certain groups of people until June 30, 2021.

Still, the moratorium in general has delayed the recognition of write-downs by banks and therefore the high number of bad loans subsequently reported may be due to the lag, noted an analyst who requested anonymity.

UOB Malaysia economist Julia Goh acknowledged that NPLs had risen slightly since loan repayments began in October last year.

“I think the uncertainty regarding the economic recovery and the tightening of containment measures as well as the movement control order (MCO) are also additional factors, especially for sectors related to tourism, retail and at leisure,” she told The Edge.

As it stands, the BNM previously warned in its Financial Stability Review that overall writedowns could exceed 4% of loans by the end of 2021, mainly due to the corporate segment, due to shocks. economic and financial aspects of Covid-19. pandemic.

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

Rising bad loans may seem to paint a gloomy picture of economic recovery, but banks should be able to weather the current shocks as most metrics – capitalization and liquidity level – have been kept higher at the prescribed minimum level, Mohd Afzanizam Abdul Rashid, Chief Economist at Bank Islam Malaysia Bhd commented.

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

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

Still, a slower pace of recovery and lingering labor market challenges could likely put more pressure on bad loans, UOB’s Goh pointed out.

The BNM said banks continued to build additional provisions as a precaution against future credit losses, with the ratio of total provisions to total loans rising from 1.6% in November to 1.7% in December.

“Borrowers who remain affected by the difficult conditions continue to receive the necessary support from banks, through targeted repayment assistance,” he said.

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