Household loan depreciation will double in 2H21 – BNM

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KUALA LUMPUR (Oct. 14): Household loan impairments are expected to double, albeit from historically low levels, Bank Negara Malaysia (BNM) said in its latest financial stability report.

“Greater budgetary disruptions are expected in the second half of 2021 (2H21) as the expanded repayment assistance programs remain in place until the first quarter of 2021 (1st quarter 21) for those with income loss,” the central bank said in the report for 1H20.

The scenario was part of the results of the BNM’s most recent stress test, an integral part of the central bank’s financial stability framework to assess and manage risks to financial stability.

According to a macro stress test conducted by the central bank, total allowances could soar to over 4% of loans by the end of 2021 due to the economic and financial shocks from the Covid-19 pandemic, largely driven by the business area.

The stress test took into account the effects of the blanket moratorium introduced in April and the subsequent targeted repayment assistance for private individuals that the banks had announced in August, according to the central bank’s report.

The review said the business disruption is likely to be caused by defaults on maturing bullet repayments by companies operating in vulnerable sectors, mainly the service industry, which is expected to experience a slower recovery, as well as exposure to several large groups of borrowers with weaker ones Financial stocks.

The central bank’s most recent macro stress test examined potential losses to the banking system from the perceived impact of a recovery path derived from the bank’s updated macroeconomic outlook.

“This scenario assumes that growth bottomed out in Q220. Then, with the economy reopening in early May, the economy is expected to gradually recover in 2H20 and recover in 2021 amid a global growth rebound backed by a range of stimulus and financial assistance from the government and the US [central] Bank, “it said.

Also read:
Households can withstand extreme stock market shocks – central bank
Household debt weakened to 4% in the first half of 20 due to cautious discretionary spending – Bank Negara

For more reports on the BNM Financial Stability Review, click Here.

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