Get the loans growing to cover the hole created by debt going bad

If your credit standing is decent, wait for the next cold call from the bank, it might be a deal you can’t refuse

pic by TMR FILE

COLD calls and messages from banks offering cheap personal financing or balance transfers have increased since the easing of the Movement Control Order (MCO).

Many banks in the country have the means to lend and want to do so, to improve earnings which are under pressure from the prospects of weaker loan growth and rising provisions due to the increase in non-performing loans (NPLs).

For their management, the race to give out fresh loans is driven by the law of numbers — the deposits need to be put to work and a larger loan book will make the NPL ratio looks low, even though the absolute default rates rise.

So, it’s pretty much the best form of defence. The blanket six-month moratorium offer on loan repayments is set to hit bank incomes in the immediate term as will the lower net interest margin due to the cut in the policy rate by the central bank.

The fast approved personal loans have a high enough interest rate and will help address any fall in revenue. For borrowers seeking quick access to credit, the various offers can help them manage their finances better, especially with interest rates back so low. So, it could be a win-win for both parties.

The pandemic and MCO’s impact on the economy is set to hit banks’ earnings potential.

Rising unemployment and financial problems for businesses is set to impact loan repayments with the six-month blanket moratorium providing some space to manage the level of NPLs.

Just how badly banks will be impacted depends very much on the type of recovery the economy undergoes.

If it’s a ‘V’ shaped recovery, the impact on the sector earnings could be minimised and investors dependent on their dividends needn’t worry too much.

If it’s a long drawn choppy “U” or “W” shaped recovery due to further restrictive measures introduced to contain a second wave of virus infections, the banks and everyone else could be in for a tougher time.

The sharp rebound in car sales figures in June by makers like Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd would suggest consumer spending is starting to pick up, helped in part by the various stimulus measures announced by the government.

What is clear is, this period is not like the Asian financial crisis in 1997/98 which hit the local financial sector hard with many finance companies and banks forced to merge or recapitalise.

That crisis saw a spike in NPLs at finance companies like Malaysia Building Society Bhd (MBSB), which barely managed to survive with funding help from the Employees Provident Fund. Others were taken over by stronger banks.

The banks now are in a far healthier financial condition and are wiser. Nevertheless, Covid-19 has already stamped its mark on the sector with MBSB Bank Bhd posting a net loss of RM73 million in the first quarter ended March 31, 2020, due mainly to impairment charges.

Its CEO has said the bank will now seek to engage borrowers to manage loan repayments and defaults, while seeking to grow its loan book in the personal finance space, as well as trade finance.

So, if your credit standing is decent, wait for the next cold call from the bank, it might be a deal you can’t refuse and even at a cheaper rate done online.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.