Pressure to earnings and increasing NPLs

Is a financial crisis coming to Malaysia? Well, the first sign would have to come from the banks. Thus far, none of the banks in Malaysia are reporting losses. However, as per reported in many local media, the earnings of banks are down versus the years after the 2008 financial crisis (US Mortgage crisis). Major reason is because of a slowing economy as well as higher amounts set aside for bad debts. Within the first nine months of this year, the banking sector registered a combined total net profit of RM5.22 billion. Compared to a year ago, this number is lower and has been falling for the fifth straight quarter from RM5.54 billion previously.

Topline revenue to the eight anchor banks in Malaysia grew 9.2 percent year-on-year. However, year–on-year profits are dropping. Analysts said this is due to higher overhead expenses and a jump in let loan allowances. Loans growth are also slowing which is not a surprise. This downtrend was caused by the decline from both the business (down 9.8 percent) and household (down 8 percent) segments.

Anyway, despite all these reports, it is still clear that “slowdown” is the keyword here. Nothing to do with ‘crisis’ yet. Perhaps “slight deterioration” would summarise the current banking industry. Do note that these doubtful debt provisions are conservative enough and even after these, the banks continue to report results which are broadly in line with expectations. I think everyone must continue to keep track of these numbers from the banks because these numbers tell much more than what some of the property gurus in the market are saying.

Do note that if Non Performing Loans (NPL) start to rise, it will trigger many other negative things as well, including even harder to obtain loans etc. Selling a property for a good price may be tougher then. Due to even stricter loan requirements, it would also be tough for potential buyers to get a loan. Happy following.

written on 31 Dec 2015

Next suggested article: Yes, Malaysian bans are still doing okay

 

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