KUALA LUMPUR: The six largest Malaysian banks' non-performing loans (NPLs) will unlikely increase sharply despite the expected deterioration in banks' asset quality, according to Moody's.
In a report today, the credit rating agency said most of the repayment assistance scheme's applicants could have sufficient financial capacity to repay their debt when the programme ended.
"We expect most of the loans under repayment assistance will remain performing when the six-month measure expires,"it said.
Moody's said a gradual lifting of stringent measures to contain the coronavirus outbreak would support economic growth, resulting in overall improvements in the repayment capacity of borrowers who were under stress.
"At AMMB Holdings Bhd, Malayan Banking Bhd and RHB Bank Bhd, households whose income are at the top 20 per cent of the population account for more than half of retail loans under the scheme."
Moody's said most of these borrowers withstood stress during the first two lock downs, given that only a fraction applied for loan repayment assistance at that the time.
"This income group as a whole has less outstanding debt relative to annual income than others, resulting in stronger financial buffers to absorb sharp declines in earnings.
"Households in this income bracket also often have enough financial assets they can use to repay their debt."
It added that loans under repayment assistance related to the coronavirus pandemic increased to an average of 27 per cent of total loans as of July-August from 12 per cent as of March-May 2021..
This was driven by the retail and small and medium enterprise (SME) segments, after Bank Negara Malaysia expanded the programme to support a wider group of borrowers alongside the extension of a total lockdown in June.
Moody's said the number of applicants decreased in August, and the banks did not expect it to increase again.
However, some asset risks remain in the short term.
The central bank forecasts economic growth to slow in the second half of 2021, and the unemployment rate remained high at 4.8 per cent as of June 2021.
"An uneven economic recovery will continue to strain some borrowers operating in or working in the sectors affected most severely by the pandemic."
Moody's said loans that had gone through multiple rounds of assistance are also particularly vulnerable.
"Nonetheless, banks will continue to increase loan-loss provisions," said Moody's.
The six banks' loan loss reserves, excluding regulatory reserves, increased to 166 per cent of gross impaired loans on average at the end of June 2021 from 106 per cent a year earlier.
The six banks also have strong capital buffers to absorb unexpected stress, with an average Common Equity Tier One of 14 per cent at the end of June 2021.