Malaysian banks warned against non-per­form­ing loans

The Pak Banker - - Front Page -

PETALING JAYA: While banks, gen­er­ally, are not reck­less and ir­re­spon­si­ble len­ders go­ing by the non-per­form­ing loans (NPLs) yard­stick, they should be watch­ful when ex­tend­ing loans which may be risky amid the spike in house­hold debt, said RAM Hold­ings Bhd group chief econ­o­mist Dr Yeah Kim Leng.

The lat­est fig­ures re­leased by Bank Ne­gara showed that to­tal house­hold debt reached an all-time high of RM561.5bil or 78.1% of gross do­mes­tic prod­uct (GDP) as at end-Au­gust, the sec­ond high­est debt level in Asia out­side Ja­pan.

As at end-2009, house­hold debt stood at RM516.6bil or 76.6% of GDP, com­pared with 63.9% in 2008 while from 2005 to 2008, to­tal house­hold debt av­er­aged at 67%. "As com­pe­ti­tion intensifies in a low in­ter­est rate and liq­uid­ity- flushed en­vi­ron­ment, banks should con­tinue to main­tain pru­dent risk ap­petite and guard against be­ing blind-sided by build-ups in risk con­cen­tra­tions," Yeah said.

"Since hit­ting a peak of 166% of GDP prior to the Asian fi­nan­cial cri­sis in 1998, the coun­try's to­tal pri­vate sec­tor credit has re­versed its de­clin­ing trend from a low of 111% in 2008 to reach an es­ti­mated 123% of GDP this year. With the rise in over­all debt level, it is ap­pro­pri­ate to alert banks against risky lend­ing that usu­ally ac­com­pa­nies a surge in debt level."

Given the close su­per­vi­sion of the cen­tral bank and the con­tin­u­ous strength­en­ing of banks' risk man­age­ment since the Asian fi­nan­cial cri­sis, he said there was less room for reck­less lend­ing al­though banks may stretch lend­ing to the lim­its for se­lected in­di­vid­u­als and firms.

Banks would have to weigh care­fully the trade-off be­tween com­pet­ing for a big­ger slice of the loans mar­ket and higher risk ex­po­sure, he added.

Yeah said banks ac­counted for 87% of to­tal pri­vate sec­tor credit while the bond mar­ket con­trib­uted the rest, adding that over the last 10 years, loans growth av­er­aged 6.9% per year com­pared with 5.1% for debt se­cu­ri­ties.

With the em­pha­sis on pri­vate sec­tor-led growth over the next 10 years un­der the Eco­nomic Trans­for­ma­tion Pro­gramme (ETP), he said not only the rate of re-lever­ag­ing needed to be watched care­fully but also the ap­pro­pri­ate mix be­tween bonds, loans and in­ter­nally gen­er­ated funds to en­sure the op­ti­mal cap­i­tal struc­ture for firms and al­lo­ca­tion of credit risk in the econ­omy.

Bank Ne­gara gover­nor Tan Sri Dr Zeti Akhtar Aziz last month in a key­note ad­dress at the Fi­nan­cial In­dus­try Con­fer­ence 2010 said the re­cent global fi­nan­cial cri­sis had shown that ir­re­spon­si­ble lend­ing prac­tices by banks had con­trib­uted to the build up of ex­ces­sive lever­age among house­holds, which in turn sowed seeds for neg­a­tive con­se­quences on the fi­nan­cial sys­tem and real econ­omy. -PB News

IS­LAM­ABAD: Deputy Chair­man NADRA Tariq Ma­lik and Ms. Ozgur Rodoplu, Gen­eral Man­ager Global De­fense-Turkey sign­ing an agree­ment at Head­quar­ters NADRA about ex­plor­ing the mar­ket for Home­land Se­cu­rity So­lu­tions. -App

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.