Loan impairments hold steady at just 1%

The net impaired loans-to-net total loans ratio has fallen slightly, and remains low — at just 0.9% as at August 2020 — as impairments lagged banks’ higher provisioning. The impairment rate is significantly lower than the 14% recorded during the Asian financial crisis in 1998 and 3% during the global financial crisis.

Yes, the low impairments could be attributed, in part, to the automatic sixmonth loan moratorium. Overall impairment is expected to rise over the next 12 to 18 months — even so, it is expected to stay manageable and will remain well below historical levels for several reasons.

According to Bank Negara, banks had engaged more than two million borrowers for repayment assistance (as at end-September) under its targeted moratorium programme. As at Oct 9, there were only 640,000 applications, of which 98% were approved. This number is a mere one-fifth of what Bank Negara had initially anticipated, suggesting that the number of distressed borrowers remains moderate. In fact, borrowers have gradually resumed repayments ahead of the expiry of the six-month moratorium period, at endSeptember, with total loan repayments reaching 70% of pre-crisis levels.

Unlike during the Asian financial crisis, when conglomerates were faced with bankruptcies and became a huge drag on the banking system and overall economy, big listed companies are in much better shape today.

According to data compiled by AbsolutelyStocks.com, 47% of the 877 companies listed on Bursa Malaysia (excluding financials and real estate investment trusts) are in net cash positions.

Only 17%, or 153, of the companies have net gearing above 60%, the majority of which are smaller-capitalisation stocks. And of these, just 85 have interest cover of less than two times. Excluding utilities Tenaga Nasional and the three big telcos, where high gearing is an industry norm and whose cash flows are very steady, the remaining high-geared companies collectively account for only 9% of Bursa’s total market cap.

Furthermore, debt-servicing burden has lessened following the steep cuts to interest rates. Meanwhile, Bank Negara, working with banks, has put in place loan assistance programmes — including the RM18.1 billion SME Fund and pre-emptive restructuring and rescheduling — to help tide smaller businesses over near-term cash shortfalls.