Malaysia’s impaired loans reach 10-year high

The country’s impaired loans stood at RM29b in January with total provisions registered at RM31b


IMPAIRED loans and financing in the country reached a 10-year high in January, after recording a gradual increase since last October, following the end of the six-month blanket loan moratorium in September.

According to data by Bank Negara Malaysia (BNM), the country’s impaired loans stood at RM29.43 billion in January with total provisions registered at RM31.2 billion.

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

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said impairment loans would have increased further if financial institutions did not proceed with targeted repayment assistance until June this year.

He said the second half of 2021 would be critical to view the trend of impairment loans as targeted repayment assistance would have ended by then.

“It does make sense given that the economic uncertainties remain heightened and the economy is expected to operate below its potential.

“What it means is that the economy would remain soft and therefore, credit risks will continue to be on the high side.

“So, banks will need to be very vigilant in their underwriting standards and therefore, provisioning could stay elevated this year,” Mohd Afzanizam told The Malaysian Reserve (TMR).

BNM stated that gross impaired loans (GIL) ratio increased marginally to 1.6% in January compared to 1.56% in December last year.

The last time impaired loans were recorded to have reached close to RM30 billion was in February 2011, where it came in at RM29.71 billion with collective impairment provisions at RM17.52 billion.

In September last year, total impaired loans stood at RM24.9 billion, which was the lowest number registered for the whole year.

The figure then increased to RM25.71 billion in October and RM27.84 billion in November before settling at RM28.62 billion by year-end. Total provisions also recorded a steady increase from RM27.14 billion in September before rising to RM28.57 billion and RM29.91 billion in October and November respectively, and ended the year at RM31.21 billion.

With the rise in impairment loans and provisions, Mohd Afzanizam said it may be a challenging year for the lenders in terms of earnings.

Nevertheless, he said the capitalisation and liquidity for the banking system remain more than ample to support the economy.

“It is just that credit risks are high and banks would be extremely careful in their underwriting standards. The rise in bond yields would also mean risks of mark-to-market loss are highly visible in their bond portfolio,” he added.

MIDF Amanah Investment Bank Bhd head of research Imran Yassin Mohd Yusof opined that the GIL ratio will likely peak in the first quarter of 2021.

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

“Looking at BNM’s data on the banking system, the GIL ratio as at January 2021 was circa 1.6% which is a three basis points month-on-month uptick from December 2020.

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

Read our previous report here

Bank asset quality to stay resilient despite repayment assistance