A longer period is needed to confirm strength of affected portfolios.
Malaysian banks are emerging from the country’s six-month moratorium with robust credit portfolios, but the underlying strength of affected borrowers remains to be seen and the initial recovery of repayments could be feeble, according to a S&P Global Ratings report.
The Q3 earnings of major banks indicated the sector’s exercising caution as it slithers out of the honeymoon phase left behind by the debt moratorium that ended on 31 September.
This blanket moratorium was a debt repayment relief for all retail as well as SME clients, which froze account downgrades and formation of nonperforming loans for more than 70% of local lenders' loan books.
The proportion of the loan book that requires further repayment assistance has dropped to 8-13% for major Malaysian banks on average, from 70-80% in the initial phase of the blanket moratorium. However, the industry only has repayment data for one month, and a longer observation period is needed to confirm the underlying resilience of affected portfolios, the report said.
On the other hand, the sector’s continuous prudence in proactive provisioning will help further contain downside credit risks. Local banks built up their provisioning buffer in the first three quarters of the year amidst a sharp economic contraction, credit costs for eight local banking groups ballooning more than 200% YoY to $2.5b (MYR10b) whilst gross impaired loan ratio hovered at 1.4-1.5% during the blanket moratorium.
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