KUALA LUMPUR, April 14\u00a0—\u00a0Regulations will soften the ensuing economic shock from COVID-19, but it would also increase\u00a0risks for banks, said Moody\u2019s Investors Service.<\/p>\n
In a research note today, Moody\u2019s said on March 25, Bank Negara Malaysia\u00a0(BNM) announced\u00a0a six-month debt moratorium for borrowers in the retail and small and medium-sized enterprise (SME) segments to help them manage the liquidity crunch from disruptions caused by the novel coronavirus outbreak.<\/p>\n
\u201cThe debt moratorium will soften the near-term credit-negative impact on the banks’ asset quality. However, it also prevents banks from taking early restructuring or recovery action on specific borrowers.<\/p>\n
\u201cThis could\u00a0lead to higher credit losses after the moratorium is lifted. We expect\u00a0an increase in the banks’ impaired loans after the moratorium ends, especially if the coronavirus outbreak is prolonged and continues to disrupt domestic economic activity,\u201d it said.<\/p>\n<\/div>\n
Moody\u2019s also noted that before the automatic moratorium, banks were already offering debt moratoriums to borrowers on a case-by-case basis, and over\u00a070 per cent\u00a0of banking\u00a0loans as of Dec 31,\u00a02019 falls\u00a0under the moratorium.<\/p>\n
Among the banks it\u00a0rated, Public Bank Bhd (A3 stable, a3) and Hong Leong Bank Bhd (A3 stable, a3) have the highest proportion of loans which qualifies for the moratorium because these banks focus on the retail and SME segments, it said.<\/p>\n<\/div>\n
\u201cHowever, the total amount of deferred loans could change as cash-rich customers opt out and banks grant debt moratorium to corporate borrowers,\u201d the research firm said.<\/p>\n
Moody\u2019s said BNM is also encouraging banks to lend by temporarily lowering the regulatory requirements on liquidity and capital, in line with similar measures undertaken by the European Central Bank in March 2020.<\/p>\n
It said that banks can now utilise the 2.5 per cent capital conservation buffer and regulatory reserve, and operate below the minimum 100 per cent liquidity coverage ratio until Dec 31,\u00a02020.<\/p>\n<\/div>\n
\u201cThe minimum net stable funding ratio will also be lowered to 80 per cent\u00a0from 100 per cent\u00a0when it is implemented in July 2020,\u201d it said.<\/p>\n
However, these regulatory relaxations\u00a0could also\u00a0increase risks for bank creditors, said Moody\u2019s.<\/p>\n
\u201cAs for now, Malaysian banks have capitalisation that is well above the existing regulatory requirements and liquidity is also strong, with some buffers above the regulatory minimum.<\/p>\n
\u201cThe liquidity pressure arising from the debt moratorium will likely be offset by weak loan demand and an increasing number of borrowers opting out of the automatic moratorium,\u201d it added.<\/p>\n
— BERNAMA<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
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