Banks not to blame for commercial property glut

After the doldrums, the sector is expected to pick up momentum in the second half of next year with a recovery in, among others, oil prices as well as a clear direction on US policies especially on its interest rates

KUALA LUMPUR: The Association of Banks in Malaysia (ABM) has refuted a claim that banks are responsible for the supply glut in retail and office space in the Klang Valley.

In a statement issued on Friday, ABM said that a claim in an article by a local news portal falsely alleges that banks have been giving out loans for the development of commercial properties without due diligence.

The association added that member banks have in place "stringent processes" for credit risk assessment.

"This may include, but are not limited to, conducting project feasibility studies performed by independent parties or in-house commercial property experts, marketability and competitors’ analysis, assessment of economic and market developments, as well as repayment capability, to ensure the viability of the project," it said.

"Moreover, banks do not rely solely on feasibility/valuation reports as other factors and criteria, such as the developer’s financial standing, track record and multiple sources of funds for repayment, would also be considered in the assessment of loan applications."

According to ABM, banks assess the market situation, economic trends and outlook, among other factors.

When financing commercial properties and shopping malls, banks conduct a higher degree of risk assessment and approving level. 

"Generally, these banks would not finance shopping malls unless they form part of the integrated wider financing requirement e.g. township development or high rise residential development," it said.

ABM pointed out that banks are not the only party responsible for the creation of the properties or their financing.

"All stakeholders should work collaboratively to address this issue more effectively for the betterment of the nation," it said.