THE gradual tapering of COVID-19 relief measures will help prevent a spike in non-performing loans (NPLs) for ASEAN and Indian banks as both regions face an uneven recovery ahead.
The gradual tapering of support measures will give borrowers time to adjust and enable banks to build loan-loss buffers which in turn reduces the risk of a sharp decline in banks’ asset quality, according to Moody’s Investors Service.
“Still, risks remain amid a likely uneven recovery in 2021 that remains vulnerable to setbacks, including any new wave of COVID-19 infections,” Moody’s assistant vice president and analyst Rebaca Tan pointed out.
Her views were incorporated in a new report entitled Banks – ASEAN and India: Gradual Tapering of Coronavirus Relief Lowers Risk of Sharp Decline in Asset Quality.
The most common among programmes introduced at the outset of the pandemic to support borrowers were loan moratoria which will soon be phased out in most countries.
In place of loan moratoria, regulators are encouraging banks to restructure loans by allowing lenders to classify these loans as performing.
“This approach will buy many banks important time to manage the deterioration in asset quality that is likely to follow the economic downturn which will drive up unemployment and depress corporate earnings,” opined the credit rating agency.
Moody’s further observed that loan moratoria still exist in varying degrees in the Philippines, Malaysia and Thailand.
Among the three countries, the scope of borrowers eligible for loan moratoria is the broadest in the Philippines.
Under a new rule that took effect on Oct 1, all banks in the country are required to implement a one-time, 60-day moratorium for all performing loans with principal, interest or both coming due on or before Dec 31.
In Malaysia and Thailand, the extent of loan moratoria has been reduced. In Malaysia, loan moratoria are now limited to selected groups of retail borrowers as well as micro-enterprises with loans up to RM150,000.
In Thailand, banks only offer loan moratoria only on a case-by-case basis. – Dec 10, 2020
