PETALING JAYA: More non-performing loans (NPLs) are expected to be sold by banks or outsourced to debt management companies over the next few quarters, as customers struggle to pay up loans amid a tough economic environment.
Debt management firm Collectius Malaysia country managing director Leong Yam Meng told StarBiz the reason for the sale and outsourcing of collections of NPLs is due to the lifting of the loan moratorium that was put in place by Bank Negara about a year ago.
He said since then, individuals and corporates have been able to negotiate with banks to restructure their debt repayments.
“However, some customers still face difficulties in paying up their loans amid a challenging macroeconomic environment. We are seeing more NPLs flowing into the market now that they were left untouched for two years when the loan moratorium was in place.
“We have seen an increase of between 25% and 30% of NPLs that have been outsourced for collection in the first half of 2023 compared to the same period last year.”
Collectius Malaysia country managing director Leong Yam Meng
In terms of the outright sale of NPLs, Leong said there have also been higher volumes of NPLs being put up for sale in the market, with banks mostly disposing of old accounts that have been accumulated since 2019, prior to the Covid-19 pandemic.
“The company is currently in discussions with a number of banks in Malaysia on NPL sales which may materialise in the early part of next year,” he said, without going into details of the identities of the banks.
Collectius last year bought its first secured NPL portfolio through a global bank with the endorsement of Bank Negara.
Leong said consumers are mostly taking out loans to fulfil their monthly spending needs and obligations, adding that the rise in the price of goods has had quite a significant impact on consumers.
According to data services provider CEIC, the country’s NPL ratio was flat at 1.8% in June this year compared with the similar ratio of 1.8% in the previous month. It reached an all-time high of 9.5% in February 2006 and a record low of 1.4% in September 2020.
As for debt repayment trends, Leong said he sees more customers opting for lower instalment repayments, ranging approximately from 70% to 80% of their normal instalment amounts in the first half of the year compared with the same period last year.
This showed that customers have less cash in hand to pay their debts, he said.
On the composition of the bad debt being sold or outsourced in the first half of the year, Leong said most of the bad debt being put up for sale were unsecured loans, mostly credit card and personal loans.
Those being outsourced for collection consisted of around 70% unsecured loans and 30% secured loans, he pointed out.
He said the firm has also observed a slight rise of between 2% and 3% of NPLs coming from motorbike leasing companies, which are now exploring how they can sell their bad debts to obtain some liquidity.
“Due to the stricter credit conditions by banks, motorbike leasing companies have taken the opportunity to increase their loan base but the challenging economic environment means that they are seeing more loan defaults,” Leong said.
Commenting on the outlook for NPLs for the second half of the year, Leong said it remains volatile due to a mix of lower credit growth and signs of asset quality deterioration among banks.
He said based on the gross domestic product (GDP) in the second quarter of 2023 (2Q23), it showed that the economy is facing downside risks due to weaker than expected global growth and the less than stellar export environment.
Leong said this would likely impact business earnings and, in turn, weigh on the ability of households and businesses to repay their loans.
Malaysia posted a disappointing GDP growth of 2.9% year-on-year in 2Q23. With external demand turning sour, analysts predicted the economy to grow closer to the lower-end of Bank Negara’s official guidance of 4% to 5% in 2023.
Over the next few quarters, Leong expects NPLs will continue on an uptrend due to limited cash flow in the market, as banks are expected to tighten loans if conditions continue to remain subdued.
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 small and medium enterprise NPL portfolios of more than US$7bil (RM30bil), either purchased by Collectius or held by independent parties.
Since starting operations in 2016, the company has registered a compounded annual growth rate of 40%.
Collectius’ total assets under management grew 42% to US$7.2bil (RM33bil) in 2022, of which US$4.9bil (RM23bil) are loans purchased by the firm, with the remainder being debt serviced on behalf of its clients.
