No major spike in loss-loan provision in 2020

Despite NPLs for the overall banking system reaching RM28.3b as at October 2019


LOCAL banks are not expected to make hefty provisions next year despite pockets of increase in non-performing loans (NPLs) reported by lenders this year.

Bank Negara Malaysia’s recent data revealed that NPLs for the overall banking system reached RM28.3 billion as at October 2019.

This figure is the second-highest recorded since May 2011, registering a staggering RM28.46 billion.

Despite higher NPLs, the ratio of total provisions in October was only 1.44% of the financial system’s overall loan outstanding of RM1.75 trillion.

Analysts do not expect the current situation to persist in the future, although worries about a slowing economy may balloon NPLs.

“There hasn’t been a broad base default trend as yet, nor are we expecting any for 2020. Some of the provisions were due to bigger financial assets such as bonds or sukuk that are held by the banks,” MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Yusof told The Malaysian Reserve (TMR).

The rescheduling or restructuring facility of loans that is made to prevent NPLs had also contributed to the risk of loan impairment.

“As such, we do not expect provisions to balloon up in 2020, despite the possibility of higher impaired loans,” he added.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said conservative banks are expected to provide more provisions.

“They do this so they don’t have to allocate further provisions in the future. It really depends on bank practices and their risk appetite,” he said.

A check by TMR showed that three out of five local banks had allocated higher provisions in the first nine months of 2019 (9M19) compared to the same period last year.

Malayan Banking Bhd (Maybank) set aside a total of RM1.36 billion allowances for impairment losses on loan commitments and financial guarantee contracts, compared to RM779.97 million in 9M18.

Public Bank Bhd’s allowance for impairment on loans, advances and financing in 9M19 amounted to RM114.48 million, against RM134.83 million in the same period last year.

CIMB Group Holdings Bhd set aside RM1.03 billion of expected credit losses on loans, advances and financing in 9M19, compared to RM1.14 billion in the corresponding period last year.

RHB Bank Bhd al located RM230.04 million credit losses on loan commitments million in 9M19, from RM122.45 million in 9M18, while Hong Leong Financial Group Bhd fixed RM51.79 million of impairment losses on loans advances and financing and other losses compared to RM42.08 million in the same period last year.

“In relation to the comparison of the provisions level, we have to bear in mind that some of the banks have regional exposure so, the provisions might come from there.

That is why we saw Maybank’s and CIMB’s provisions higher than Public Bank.

“Higher exposure to corporate might also cause higher provisions given the ‘lumpy’ nature of those borrowings,” Imran Yassin said.

Lenders book the provisions as net income if they can recoup the NPLs from default borrowers, enhancing their profits for next year.