NEW YORK, Sept 13 — Malaysia’s six largest banks have reported that loans under Covid-19 pandemic-related repayment assistance increased to an average of 27 per cent of total loans between July and August 2021 from 12 per cent in March to May.
This was driven by the retail and small and medium enterprise (SME) segments, after Bank Negara Malaysia (BNM) expanded the programme to support a wider group of borrowers alongside the extension of a total lockdown in June, said Moody's Investors Service (Moody's).
“Although this will result in a deterioration in banks' asset quality, we do not expect nonperforming loans (NPLs) to increase sharply because most of the scheme's applicants are likely to have sufficient financial capacity to repay their debt when the programme ends,” it said.
In its sector commentary, ‘Banks — Malaysia: Loans under repayment aid increase but asset quality deterioration will be limited’, it said the banks were Hong Leong Bank Bhd, Public Bank Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd, RHB Group Bhd and AmBank Group.
From July 7, 2021, all applications from individuals and SMEs for payment deferrals and reductions in installment payments of loans are automatically approved, with no supporting documents required.
Previously, only applications from B40 income households and micro enterprises were automatically approved.
“We expect most of the loans under repayment assistance will remain performing when the six-month measure expires.
“One reason is that while the large volume of applications in July indicates that stressed borrowers may have increased, many had applied for the programme to take advantage of its easy requirements and conserve cash, not because they face severe financial difficulties, according to the banks,” it said.
Additionally, Moody’s said a gradual lifting of stringent measures to contain the coronavirus outbreak will support economic growth, resulting in overall improvements in the repayment capacity of borrowers that are currently under stress.
The number of applicants decreased in August, and the banks do not expect it to increase again.
However, it noted that some asset risks remain in the short term.
It said the central bank forecasts economic growth to slow down in the second half of 2021, meanwhile, the unemployment rate remained high at 4.8 per cent as of June 2021.
An uneven economic recovery will continue to strain some borrowers operating in or working in sectors which were most severely affected by the pandemic.
“Loans that have gone through multiple rounds of assistance are also particularly vulnerable.
“Nonetheless, banks will continue to increase loan-loss provisions,” it said.
The six banks' loan loss reserves, excluding regulatory reserves, increased to 166 per cent of gross impaired loans on average at the end of June 2021 from 106 per cent a year earlier.
The six banks also have strong capital buffers to absorb unexpected stress, with an average Common Equity Tier 1 of 14 per cent at the end of June 2021, it added. — Bernaama