Business

Tuesday April 14, 2009

Banking sector may see higher NPL ratio in March figures

By K.C LAW


PETALING JAYA: A higher rate of non-performing loans (NPLs) could be in the offing going forward, although February data showed NPLs at only 2.2%, analysts said.

Jupiter Securities Sdn Bhd head of research Pong Teng Siew said the banking sector could see a higher NPL ratio as early as the upcoming March figures.

Nor Zahidi Alias

“From what we gather from legal firms, yes, there is a big jump in the issuance of letters of demand,” Pong said.

“Some lawyers even said letters of demand have gone up by two to threefold since late last year but I don’t think these (defaults in payment) had shown up in the official NPL data yet,” he said.

A letter of demand is issued when borrowers fail to pay their loans for more than three months.

“At this point in time, we did not see NPL rising because of double digit loan growth up to this February. When the loan growth is high, it tends to keep the NPL ratio down (even if defaults increase),” Pong said, pointing out that February’s NPLs rose marginally to RM34.868bil from RM34.855bil in January.

Total loans grew by 10.9% in February year-on-year, according to Bank Negara. However, on a month-on-month basis, loan growth was slowing down.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias has estimated that gross NPL will increase to 5.2% this year from 4.8% last year, due to higher defaults and slower loan growth.

“Rising NPL ratio will be attributed to decline in business revenue particular in export-oriented industries, reduction in household debt servicing ability following an expected surge in the number of unemployed,” he told StarBiz in an email reply.

Dr Yeah Kim Leng

He said the manufacturing sector would likely see a higher default rate, as 88% of the total retrenchments last year came from this sector.

NPLs for credit card, hire-purchase and residential mortgages are also expected to edge higher.

“Aggressive lending in recent years has resulted in an overstretched household balance sheet, evidenced by the debt-to-gross domectic product ratio that exceeded 60% in 2008. We believe that such situation will lead to difficulties in servicing debt payment, especially when income growth remain subdued this year,” he said.

On the corporate side, Nor Zahidi said local credit rating agencies had experienced an increase in the number of rating downgrades as well as default cases, suggesting that the impact of economic slowdown was rather broad based.

RAM Holdings Bhd (RAM) chief economist Dr Yeah Kim Leng noted that NPL would rise because of the slowing economy and a sharp contraction in exports, but said the default would remain manageable due to the strength of the country’s banking system.

“Malaysia exports are down by about 25% in January and February, while Asian countries exports were plunging between 20% and 40%,” he told StarBiz. RAM has forecast a gross NPL of 9% by the end of the year.

Yeah said if Malaysia could keep retrenchment figures below 100,000 people in the first half of the year, the nation might be able to weather this difficult period. “The worst will be over by then,” he said.

From January to March 19, a total of 15,286 people were retrenched while 26,567 had a pay-cut and 30,376 temporarily laid off.

The statistics department showed unemployment rate in the fourth quarter of last year remained at 3.1%.

As at the end of last year, 368,500 people were unemployed. But signs of improvement have started to emerge in the United States and China, giving hope that recovery might be on the horizon.

“Given the concerted effort by policy makers across the globe, we are of the opinion that a meaningful recovery will take place in 2010,” Nor Zahidi said.


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