Some household borrowers could come under financial stress, says BNM

SOME segments of household borrowers with high leverage and lower financial buffers could come under financial stress from rising living costs and higher repayments on floating rate loans, said Bank Negara Malaysia (BNM).

At the same time, it said borrowers under an extended period of repayment assistance are also likely to present higher risks.

“Risks associated with such borrowers are expected to be contained,” it said in the Financial Stability Review for the First Half of 2022 released today.

BNM said the share of household loans classified by banks as exhibiting higher credit risk, termed as stage two loans, has continued to decline to 7.9% (December 2021: 8.5%).

“It is expected to decline further over the course of the year as more borrowers that have exited repayment assistance programmes complete a minimum “observation” period of loan servicing. Banks have set aside sufficient provisioning buffers against these risks. Banks also continue to extend appropriate support to household borrowers who still face financial challenges,” it added.

The review noted that household resilience continued to be supported by improving economic and labour market conditions, adding that the ratio of household debt-to-GDP has reverted closer to pre-pandemic levels at 84.5%.

“Banks continue to maintain prudent lending standards amid a sustained recovery in household lending. This is helping to preserve healthy loan servicing buffers among households and their ability to manage the impact of higher borrowing and other costs,” it said.

It said the share of household debt under repayment assistance has declined significantly from 18.8% in December 2021 to 2.4% as of June 2022, with a lower share of household debt reported by banks to be of higher credit risk. Household impairment and delinquency ratios increased marginally but continue to remain low and within expectations at 1.2% and 0.6% respectively.

Despite continued heightened volatility in the domestic financial markets, BNM said market conditions have remained orderly with the smooth intermediation of two-way flows in the bond and equity markets.

The US dollar has strengthened significantly and has remained at a two-decade high due to aggressive policy rate hikes in the US and flight to perceived safe US dollar assets.

“Continued onshore foreign-exchange (forex) market liquidity is enabling orderly adjustments to external developments. This will support businesses and market participants in managing their forex exposures,” it said.

On the share of business loans with higher credit risk, it said it has “continued to decline” to 14.4% of total business loans in line with the gradual improvement in business conditions.

The share of SME loans under repayment assistance has halved to 13.1% of total SME loans (or 2.3% of total loans from the banking system and development financial institutions). SMEs that have exited repayment assistance programmes have largely been able to resume their loan repayments. – by TMR / pic Muhd Amin Naharul