More NPL sales forecast

Leong says banks in Malaysia and the region are expected to see some deterioration in their asset quality this year, there is certainly a rising risk of NPLs.

PETALING JAYA: More banks are anticipated to sell their non-performing loans (NPLs) in the market this year with the ending of the loan moratorium last year, further impacted by the challenging global macroeconomic environment.

Although it is quite rare for banks in Malaysia to sell NPLs, analysts said global headwinds could put a dent on the asset quality of banks, which may result in such loans being sold at a discount.

Banks can instead focus on profitable loans.

Disposing loans at a discount, they said, may be more profitable than trying to collect payments from delinquent borrowers.

There have been cases of Malaysian banks selling NPLs like that, for example, in 2020, CIMB Group Holdings Bhd sold a portion of its NPLs.

Other than that, in 2019, AMMB Holdings Bhd sold NPLs from its two subsidiaries, AmBank (M) Bhd and AmBank Islamic Bhd, to Aiqon Capital Group Sdn Bhd at a value of RM553.91mil.

Commenting on the local outlook of NPLs, debt management firm Collectius Malaysia country managing director Leong Yam Meng told StarBiz given that banks in Malaysia and the region are expected to see some deterioration in their asset quality this year, there is certainly a rising risk of NPLs.

“We are constantly talking to various financial and non-financial institutions, and are ready to explore debt purchases, given the backing of funds that we have from our investors,” he added.

Collectius last year bought its first secured NPL portfolio through a global bank with the endorsement of Bank Negara.

Since the end of the loan moratorium in the middle of last year, he said banks have been taking steps to assist customers on their loan repayments.

Initiatives such as the Credit Counselling and Debt Management Agency’s Debt Management Programme have also been helpful in assisting those debt-strapped in managing their debt situation and improving their financial standing, he noted.

“There is at least a six-month time lag before rising interest rates affect repayment ability, so we will have a better picture of the NPL situation among banks in Malaysia in the second half of 2023,” Leong said.

He said the NPL outlook in Malaysia would also be impacted by the global macroeconomic environment.

He added the loosening of Covid-19 restrictions in China would provide a boost to the South-East Asian economy, but the concern would be on how long the Russia-Ukraine war drags on.

A prolonged war will have a negative impact on inflation and interest rates in Malaysia and the region, he said, noting that this would impair the ability of borrowers to repay their loans, which could lead to a possible uptick in NPLs.

On the breakdown of the purchase of NPLs, he said Collectius buys different types of NPLs from banks and corporates across Asia, including both consumer and commercial NPLs.

He said while the majority of these loans are unsecured, it bought its first secured mortgage loan portfolio last year through a global bank in Malaysia.

Collectius is one of Asia’s leading fintech companies in debt management services with operations in Singapore, Indonesia, Philippines, Malaysia, Thailand, Vietnam and India in which it has a rapidly growing footprint of more than six million customers.

The company services consumer and SME non-performing loan portfolios of more than US$7bil (RM30bil), either purchased by Collectius or held by independent parties.

On how different the scenario would take shape in terms of NPLs or bad debts going forward with the emergence of digital banks in Malaysia, Leong said this would depend on the risk appetite of digital banks.

“Digital banks rely much more heavily on the power of data analytics to manage their risk, and their ability to harness data allows them to issue funding with limited or even no collateral.

“A feature of digital banks is that they are not saddled with heavy costs associated with running physical branches.

“In trying to operate as lean as possible, we see digital banks are much more keen to explore outsourcing their debt collection operations to debt recovery firms from day one, rather than the more traditional method of outsourcing collection once a loan is overdue after 30 days,” he added.

Collectius expressed the company’s readiness to support the growth of digital banks by helping them manage their bad debts.

The firm’s digital capabilities gives it the ability to integrate seamlessly with digital banks and offer their customers a convenient digital debt repayment service, he said.

Looking ahead in 2023, Leong said Collectius expects self-service digital debt repayments to flourish in South-East Asia as digital payment adoption continues to grow in markets such as Indonesia, Thailand and the Philippines.

Elaborating on this, he said the company’s self-service digital debt repayments portal gives customers the privacy and ease to repay their debt at their convenience, and through a myriad of online payment options.

They also have the flexibility to decide on a repayment plan based on their financial situation, or they could consult with the company’s debt mediators if they wish to.

Separately, Leong said with loan options growing and individuals turning away from banks towards other alternatives, the “Buy Now Pay Later” (BNPL) segment is also an area where Collectius could add value in terms of buying NPLs.

“With BNPL rising in popularity, it is likely that this segment will start conducting the sale of NPLs in time to come,” Leong said.

On another note, he said with the release of the Financial Sector Blueprint 2022-2026, Bank Negara is seeking to remove the existing foreign equity limit requirement for buyers to attract more established international players to enter the market.

He said this would mean an increased capacity within the market to absorb NPLs, adding that this is timely given the uncertain global macro-outlook.

Collectius posted an 18% increase in full-year revenue to US$41.4mil (RM176mil) last year despite subdued sales of non-performing loans (NPLs) from banks in Asia.

Since starting operations in 2016, the company has registered a compound annual growth rate (CAGR) of 40%. Collectius’ total assets under management grew 42% to US$7.1bil (RM30bil) in 2022, of which US$4.8bil (RM20.3bil) are loans purchased by the firm while the remainder are debt serviced on behalf of its clients.

In a market where an estimated 100 million people are affected by bad debt management practices, the company in partnership with International Finance Corporation (IFC), establishes the best practices for the industry to follow.

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NPL , moratorium , interestrates , headwinds , options , digital


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