Lenders increase client scrutiny


  • Banking
  • Saturday, 23 May 2020

Banks are getting very stringent in approving loans in recent times, apart from taking a much longer time to process loans.

BANKS globally have been implementing stricter criteria for potential borrowers in an economic landscape that appears to become more challenging by the day, no thanks to the effects of a global health pandemic made worse by crashing commodity prices.

In the US, JPMorgan Chase & Co reviewed its lending guidelines recently, asking potential mortgage clients to have a certain minimum credit score as well as to make a downpayment of at least 20% on the price of the home they wish to buy.

Another major US lender, Wells Fargo & Co, has also increased its minimum credit score for potential clients as a precautionary measure against taking on clients with weak credit profiles.

Nearer to home, banks in Singapore have sounded alarm bells on oil and gas related clients, having been burned by some in the recent quarter as oil prices crashed reaching negative levels.

“Several banks have certainly tightened their credit lines and are monitoring more closely than usual current loans that have been given out to this sector or individuals from this industry and others deemed especially vulnerable to Covid-19 like tourism, retail and airlines, ” one senior banker based in Singapore says.

In Hong Kong, a similar scene is playing out where increased vigilance is the order of the day.

“More banks are exercising restraint in granting mortgages to borrowers employed in these high-risk sectors, ” Raymond Chong, managing director at mortgage referral brokerage StarPro Agency was quoted as saying by Hong Kong’s South China Morning Post.

“One bank has already thrown in the towel, ditching applications from borrowers employed in the airline service industry, ” Chong was quoted as saying.

He did not reveal the names of the lenders.

Heightened scrutiny

Back home, Malaysian banks are no exception to these precautionary measures, according to industry players.

A CEO of a public-listed property firm here confirms that local lenders are increasing their vigilance on lending.

“I just heard from my sales head that potential property buyers are being asked to show fixed deposit statements and other additional financial information that were not required before this, for applications for mortgage loans, “ he tells StarBizWeek.

Nevertheless, he believes that banks are practising this extra due diligence only for people working in certain industries or sectors which are considered especially susceptible to the current economic downturn.

“In these industries, they could either lose their jobs easily or their monthly income may be affected.”

Granted, the unemployment rate in Malaysia increased by 17% to over 600,000 people in the month of March, according to government figures.

“At the expense of growth, banks have to think about their non-performing loans (NPLs).”

Another seasoned local property player tells StarBizWeek that indeed banks here are getting very stringent in approving loans in recent times, apart from taking a much longer time to process loans.

“In a recent case, after a first round of submission of personal documents, our buyer was asked to submit proof of savings of up to 30% of the property price as a supporting document to the bank for his loan application.

“He is not the only one. It used to be extra documents requested at a later stage after the first round of assessment to show support for a higher loan margin but now it’s being asked upfront before the processing of the loan application itself, it’s getting very tough.”

MIDF Amanah Investment Bank Bhd banking analyst Imran Yassin Mohd Yusof says it is possible that banks have tightened their lending criteria.

“However, we believe that it is not applied broadly and banks are selective in terms of sectors. We can expect the banks to be more stringent and scrutinise clients from sectors that are impacted by the Covid-19 pandemic, more so those that are directly affected such as tourism and airlines.”

Even so, most banks contacted by StarBizWeek say that for now, they have not formally revised any borrowing requirements.

In its reply to StarBizWeek, Hong Leong Bank says that there are no new requirements for loan applications.

“Any borrower who wishes to take up any financial loan including hire-purchase loans will have to go through a thorough credit evaluation as per normal practice, guided by the bank, as well as the industry’s credit guidelines.”

A spokesperson from AMMB Holdings Bhd also tells StarBizWeek that the banking group has not revised its lending rules at this point in time.

“We will continue to provide support to our existing customers during these challenging times by offering moratoriums as well as restructuring & rescheduling of their facilities, whenever necessary.”

Alliance Bank declined comment when asked while Public Bank Bhd said it is unable to respond to questions on this at this point in time. Banks are facing a difficult year so far, not unlike most industries. Yesterday, the financial results of the country’s second and third largest banks, CIMB Group Holdings Bhd and Public Bank showed that they are experiencing the brunt of the current challenging times which have affected consumer spending badly.

Public Bank saw its net profit fall by 5.7% to RM1.33bil in the first quarter ended March 31 from RM1.41bil a year ago, blaming major challenges stemming from the Covid-19 pandemic, the steep fall in global oil prices and the several rounds of overnight policy rate cuts which hit earnings.

CIMB meanwhile saw its net profit drop 57% to RM507.9mil for its first quarter ended March 31, after being impacted by a spike in provisions for doubtful debts and lower non-interest income.

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