NPL for mortgages reaches RM6.8b in October, highest since 2011

NPLs for house purchase involving both commercial and Islamic banks in 3Q19 grew 13.29% from the same quarter last year


BAD loans for residential properties hit RM6.83 billion in October 2019, reaching an eight-year high, but continued to be manageable in a banking system with about RM1.7 trillion of outstanding borrowings.

According to Bank Negara Malaysia’s monthly data, the non-performing loans (NPLs) involving the bubbling residential sector hit RM6.91 billion in the second quarter of 2011 (2Q11).

But the trend could trigger alarm bells as for a year-on-year basis, NPLs for house purchases involving both commercial and Islamic banks in 3Q19 grew 13.29% to RM6.82 billion from RM6.02 billion in the same quarter last year.

On a monthly basis, the NPLs increased 4.76% from RM6.51 billion in September 2019.

As of October this year, the banking system total loan outstanding was RM1.75 trillion. The ratio of total provisions to total loans is only 1.44%, a small percentage compared to overall lending.

Total outstanding loans for housing according to the central bank’s October figure stand at RM562.88 billion.

The country’s economy slowed this year to 4.4% in 3Q19 as the heightened China-US trade war sent shivers down the spine of the global economy. The growth for the July through September period was lower than 4.9% recorded in 2Q.

Public Investment Bank Bhd head of research Ching Weng Jin said despite the rise, the NPLs for housing sector should be measured against the total portfolio size and not in isolation.

“Back in 2011, the mortgage portfolio was only RM240 billion, and today, it’s slightly under RM600 billion. So, as a percentage of the entire portfolio, the NPLs situation is actually better, so to speak.

“I suppose the NPLs being rangebound at RM5 billion to RM6 billion over the last 10 years is a good thing and reflects prudent lending by financial institutions. Meanwhile, the portfolio size more than doubled from 2011 to 2019,” he told The Malaysian Reserve.

The average of NPLs in 2011 was RM6.87 billion, followed by RM5.95 billion in 2012, RM5.43 billion (2013), RM5.08 billion (2014), RM5.07 billion (2015), RM5.22 billion (2016), RM5.57 billion (2017), RM5.99 billion (2018) and RM6.52 billion as at 3Q19.

“I think it is good that NPLs remained stably low for so long and it is important to avoid the conditions that may make things worse,” Institute for Democracy and Economic Affairs senior fellow Dr Carmelo Ferlito said.

“If we want to avoid a new cycle, with NPLs skyrocketing again, we should avoid expansionary monetary policy and easy credit. The two things walk together,” he added.

Ferlito said there is currently a lot of discussions about improving home-ownership with more easy loans, as home loans represent the big chunk in household debts — currently at 82% of GDP.

He opined that Malaysia is not heading towards a recession, which technically means a stable decline of GDP.

“Probably a slow down, but not a recession,” Ferlito said.