BNM reiterates view on more bad debts as payment aid unwinds

KUALA LUMPUR (February 11): Bank Negara Malaysia (BNM) reiterated its view that bad loans will increase as payment assistance and relief measures are finally rolled back.

BNM Governor Datuk Nor Shamsiah Mohd Yunus told a press conference today that the underlying trends in loan write-downs have been to some extent obscured by loan aid – including moratoriums on loans that were extended by banks to borrowers during the pandemic.

The latest BNM data shows Malaysia’s bad loans topped a nine-year high in the fourth quarter of 2020 (4Q20).

Non-performing loans (NPLs) hit a nine-year high of R 28.7 billion at the end of 2020, according to the latest data from the BNM.

From 24.9 billion ringgit in September, total impaired loans rose to 25.7 billion ringgit in October, then to 27.8 billion ringgit and 28.7 billion ringgit in November and December respectively. The last time bad loans reached this level was in 2011.

The percentage ratio of net impaired loans to total net loans also increased in parallel during the period. From 0.84% ​​in September, the ratio rose to 0.87% in October, 0.95% in November and 0.99% in December.

That being said, non-performing loans will be tempered by improving growth prospects. In addition, the governor noted that sound lending standards practiced by banks in the past will also support asset quality.

She reiterated that the impact of the current movement control (MCO 2.0) will be less severe than the first MCO implemented in March 2020 and therefore any further impact from the higher impairments caused by MCO 2.0 should be manageable thanks to the strong buffers. banks.

“In 2020, we also saw banks preposition themselves against higher credit risks by setting up higher loan loss provisions, which increased by more than 40% from levels seen in 2019.

“We have seen many banks take provisions that they expect to take for loan losses in the future,” she observed.

Neither Shamsiah considered that in addition to the abundant liquidity of the banking system, banks are well placed to continue to lend to the economy. She added that the central bank will update its assessment of the credit risk outlook, which will be released alongside its next financial security review.

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