WITH the economy slowly bouncing back from June onwards following implementation of the recovery movement control order, the rate of employment has also gradually improved.
The Statistics Department of Malaysia has it that in July this year, the number of employed persons continued to grow by 0.6% month-on-month after recording a growth of 0.7% in June 2020. The employment-to-population ratio also increased to 64.9% in July 2020.
This could imply an increase in household income for those employed.
Earlier this year, employment fell drastically during the March-May period as many businesses were affected by the prolonged lockdown to contain the spread of COVID-19 and resorted to lay-offs.
Following this, the Government had in April introduced a six-month loan moratorium or deferment of loan payment which ended on September 30.
According to RinggitPlus, a leading financial information portal, RM51.4 bil worth of instalments were deferred from April to June, of which RM33.4 bil was from households.
This translates into RM33.4 bil in the hands of households.
During this period, gross impaired ratio for purchase of residential properties dropped from 1.18% in April to 0.96% in August 2020.
The percentage saw an escalating trend in the first three months of the year, ranging from 1.19% in Jan to 1.22% in March.
The downtrend from April to August could be attributed to the loan moratorium offered by banks and improved household income.
Meanwhile, global financial and economic data provider, CEIC, states that Malaysia’s non-performing loans (NPL) stood at a record low of 1.4% in August 2020.
While this is good news, with the end of moratorium and recent spike in COVID-19 cases that led to the imposition of conditional movement control order, what is going to happen to the gross impaired ratio?
Recently, many local banks have come to the aid of Malaysians by providing various repayment assistance as gesture of goodwill to their clients while helping to spur the ailing economy.
On top of this, analysts are expecting Bank Negara Malaysia (BNM) to further cut the overnight policy rate by another 25 basis points by end of the year. This would lead to banks lowering loan interests which in turn may further ease repayment burden.
A local news portal recently quoted BNM’s deputy governor Jessica Chew as saying she expects to see a rise in non-performing loans (NPLs) post loan moratorium period.
The portal also anticipated a rise in residential property auctions following higher NPLs.
“There may be pay cuts or retrenchments owing to the current crisis and many borrowers may be unable to service their loan commitments, thus leading to more NPL stock,” Property Auction House executive director Danny Loh was reported as saying.
As far back as January 2016, FocusM carried a report over the concern that NPLs for residential property loans taken up by the lower income group were rising.
Statistics from the central bank further revealed that the NPLs for purchases of residential property valued below RM100,000 were on the rise.
Loans for the RM25,000-RM60,000 category also suffered a similar fate.
After registering a marginal 2% increase in loans growth in the first quarter (Q1) of 2014, total loans had been reportedly declining since then.
On the other hand, loans for purchases of residential property valued between RM150,000 and RM250,000 and above RM250,000, were at its lowest since 2007.
IHS Global Insight Asia-Pacific chief economist Rajiv Biswas reportedly said: “More expensive property are generally purchased by high-income households with substantial assets, often with larger collateral ratios.
“Consequently, the risk of such loans turning into NPLs is relatively lower than in lower income households, which may have smaller financial buffers to cushion against unexpected shocks as well as lower collateral ratios in their property.” – Oct 27, 2020