Malaysia’s bad loans hit highest level in 10 years

The country’s bad loans stood at RM 29 billion in January with total provisions recorded at RM 31 billion.

by ASILA JALIL / graphic by MZUKRI MOHAMAD

LOW lending and funding in the country hit a 10-year high in January, after registering a gradual increase since last October, following the end of the general six-month moratorium on lending in September.

According to data from Bank Negara Malaysia (BNM), the country’s bad loans stood at RM 29.43 billion in January with total provisions recorded at RM 31.2 billion.

Its ratio as a percentage of net impaired loans increased to 1.01% from 0.98% in December.

Dr Mohd Afzanizam Abdul Rashid, chief economist of Bank Islam Malaysia Bhd, said depreciation loans would have increased further if financial institutions had not provided targeted repayment assistance by June this year.

He said the second half of 2021 would be crucial to seeing the trend of impaired loans, as the targeted repayment assistance would have ended by then.

“This makes sense given that economic uncertainties remain heightened and the economy is expected to operate below its potential.

“This means that the economy would remain sluggish and therefore credit risks will continue to be high.

“Banks will therefore have to be very vigilant in their underwriting standards and therefore provisioning could remain high this year,” said Mohd Afzanizam. The Malaysian Reserve (TMR).

BNM said the gross impaired loan (GIL) ratio edged up to 1.6% in January, from 1.56% in December last year.

The last time impaired loans were recorded as reaching nearly RM30 billion was in February 2011, when they stood at RM29.71 billion with collective impairment provisions of RM17.52 billion. by RM.

In September of last year, total impaired loans stood at RM24.9 billion, the lowest figure for the entire year.

The figure then rose to RM 25.71 billion in October and RM 27.84 billion in November before settling to RM 28.62 billion at the end of the year. Total provisions also registered a steady increase of RM 27.14 billion in September before rising to RM 28.57 billion and RM 29.91 billion in October and November respectively, and ended the year at 31. , RM21 billion.

With the increase in loans and provisions for depreciation, Mohd Afzanizam said the year could be difficult for lenders in terms of profits.

Nonetheless, he said the capitalization and liquidity of the banking system remains more than sufficient to support the economy.

“It’s just that the credit risks are high and the banks would be extremely careful in their underwriting standards. Rising bond yields would also mean that the risk of downside to market is very visible in their bond portfolio, ”he added.

Imran Yassin Mohd Yusof, research director of MIDF Amanah Investment Bank Bhd, estimated that the GIL ratio is likely to peak in the first quarter of 2021.

However, he said the GIL ratio and provisions will be lower this year as the economic recovery gathers pace, coupled with targeted repayment assistance that will provide support.

“Looking at BNM data on the banking system, the GIL ratio in January 2021 was around 1.6%, up three basis points month-over-month from December 2020.

“This is a manageable level given that we saw it above 2% in 2012, and around the 1.8% level in 2014. We do not expect the GIL ratio to be above the 1.75 level. % in 2021, ”he said. .


Read our previous report here

The quality of bank assets will remain resilient despite repayment assistance

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