Financial results for the banking sector are due soon and investors are avidly monitoring the numbers. In June loan aprovals were at their highest since the 1998 financial crisis, while the three-month gross non-performing loans continued to trend downwards. There could be scrutiny on the provision for some loans said to be in default.
THE RM1bil default by an electricity supplier is an isolated case since it is one of the rare power projects that do not have a power purchase agreement with Tenaga Nasional Bhd.
Besides, this syndicated loan was one of those legacy loans that dated back to the pre-1997/98 crisis days. We do not expect this to be a systemic issue for the banking sector. Nonetheless, the latest news is a dampener to the banking sector.
A consortium of five banks is believed to be involved in the syndicated loan that was said to have been in default since December last year.
If the report on the participating banks is true, we would expect more provisions from some of those banks in the coming quarterly results. By now, the default would have been more than six months old and banks would have to start making provisions in the coming results.
OLD news is re-emerging to spook the market. The default (that was reported recently) was an old story and the CAHB group had already made some provisions on this account since the fourth quarter of last year.
The CAHB group does not have exposure to the other two large domestic corporates (whose names have been withheld for confidentiality reasons) that were rumoured to have also turned non-performing in the first half of this year.
CAHB had already made some provisions on these newly defaulted non-performing loans. Nevertheless, there would still be further provisions that would be required to be made on these accounts in the second quarter and second half of this year.
As a result of this, we will see a slight up-tick in loan losses and provisions charged to the profit and loss for the group in the second quarter. It is understood that these accounts will be restructured in that quarter.
On the whole, first-half results are likely to fall short of expectations but that is nothing to be worried about.
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