Cautious banking sector making provisions for 3Q, says BNM governor

Institution : Bank Negara Malaysia - BNM
16 November, 2020      49



KUALA LUMPUR (Nov 16): The Malaysian banking sector has been proactive in addressing the effects of Covid-19.

However, the prevailing adverse economic conditions have made it more cautious, and it is expected to continue making provisions for impairments in the third quarter of 2020 (3Q20).

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said through the observation of the central bank, the banking sector has begun to make provision in the second quarter of this year as a pre-emptive measure in anticipation of weaker credit outlook.

"Any further provisions will be depending on the monitoring and assessment of the banks on their borrowers’ performance," she said during a virtual senior editors briefing today.

According to BNM's Financial Stability Review released in October, overall credit costs to banks could rise to RM29 billion or 1.4% of total loans over 2020 and 2021.

These projections were based on the conservative estimate of the share of loans under targeted repayment assistance.

BNM’s latest September monthly statistical report revealed that the ratio of net impaired loan or financing to net total loan stood at 0.85%, while ratio of total provisions to total loan for the month under review stood at 1.5%.

Nor Shamsiah also noted that the agility and adaptability of consumers have improved over the course of the Covid-19 pandemic, coupled with containment measures taken to prevent resurgence of the cases.

"There is much better understanding of the infectivity of Covid-19 and measures are getting more targeted. Hence, although Covid-19 will have impact, it will not be as much as before. This is also translated into a much better 3Q GDP number, which came out much better than the consensus forecast number," she said. 

Earlier this year, borrowers were afforded some relief through a full automatic loan moratorium from April 1 until Sept 30. Banks continued to provide assistance to borrowers affected by Covid-19 when the blanket moratorium ended in September.

The transition to a more targeted approach provided a three month moratorium extension to individuals who had lost their jobs. Those whose incomes had been affected were offered a reduction in loan instalment.

Banks also offered repayment flexibilities to affected individual and small and medium enterprise (SME) borrowers, the options include reduce monthly instalments,paying only the interest on the loan, and other forms of flexibilities.

Following this, it was revealed that the bank loan moratorium would be extended for a further three months, though with certain modifications, and that it would be known as the Targeted Loan Repayment Assistance scheme starting Oct 1.

Previously, a total of 650,000 applications for assistance have been received, with the approval rate at 98%, of which 40% was for extension of moratorium and 60% for reduction in instalment.

On job creation in the banking and financial sector, Nor Shamsiah said banks continued to recruit in certain lines of business, especially in risk management and compliance as operations have become much more complex.

"So, there are pockets where banks are still recruiting, especially in specialised areas such as information technology and cybersecurity. So, banks are recruiting and getting balanced in these areas," she said.

In terms of employment separation there has been about 1,500 thus far in 2020 against a total employment of 166,000, she said, adding that 80% of employment in the sector are high-skilled jobs.

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