Cautious banking sector making provisions for 3Q, Bank Negara Governor says

Bank Negara Malaysia 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, although BNM had suggested that the step was unnecessary.

KUALA LUMPUR: 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 (3Q) of 2020.

Bank Negara Malaysia Governor Datuk Nor Shamsiah Mohd Yunus said through the observation of the central bank, banks have begun to gradually build up their provisions since 2nd quarter as preemptive measure in anticipation of weaker credit risk outlook given the pandemic.

Any further provisions would be dependent on on-going monitoring of their borrowers during this challenging period.

According to BNM's Financial Stability Review released in October, overall credit costs to banks could rise to RM29 billion or 1.4 per cent 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 per cent while ratio of total provisions to total loan for the month under review stood at 1.5 per cent.

During a virtual senior editors briefing, 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 SME borrowers such as lengthening the overall period of the loan to reduce monthly instalments; paying only the interest on the loan, for a period of time; and other forms of flexibility until the borrowers are stable enough to resume repayments.

The Finance Minister announced while tabling Budget 2021 that the bank loan moratorium would be extended for a further three months, albeit with some changes. The targeted loan repayment assistance (TRA) scheme, as it is called, would remain effective from Oct 1 until Dec 30.

To date, a total of 650,000 applications for assistance have been received, with the approval rate at 98 per cent, of which 40 per cent was for extension of moratorium and 60 per cent 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 Cyber Security. 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 per cent of employment in the sector are high skilled jobs. - Bernama

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