KUALA LUMPUR – The Malaysian banking industry needs to continue to adapt and change as the pandemic continues to wreak havoc on the economy with the country in its third movement control order, according to Deloitte Malaysia.
Restructuring services leader Khoo Siew Kiat said the COVID-19 pandemic has negatively impacted almost all real sectors with some like the tourism and hospitality, aviation, retail, and real estate sectors being worse hit than others.
In a statement on June 23, he said Malaysian banks, in general, are well capitalised with low non-performing loan (NPL) levels, credit costs, and sufficient capital buffers.
“However, NPL ratios are expected to increase once the moratorium or targeted repayment assistance for borrowers come to an end, driven by small and medium enterprises (SMEs) and retail customers.
“The risk of higher loan defaults adds pressure on the profitability of banks. Although Malaysian banks have made additional loan loss provisions to deal with deteriorating loan asset quality, the full extent of the consequences of the pandemic-induced credit risk has yet to emerge,” he noted.
He said previous crises had shown that banks that took bold and difficult decisions early to deal with issues quickly and decisively will recover and thrive ahead of their peer groups.
These strategies, he said, should not distract banks from conducting or operating their core business but be deployed with tightened operational alignment, together with the help of in-house talent and professional advisors with various skillsets.
Khoo said as the Malaysian market waits for Bank Negara Malaysia (BNM) to re-look into NPL guidelines, banks can prepare for future portfolio sales by conducting data integrity checks, data preparation and remediation, loan portfolio diagnostics, indicative pricing exercises and preparation for the overall transaction process.