Yes, there are differences between banks rejecting loan applications because they do not quality versus refusing to lend because they feel their own non-performing-loans (NPLs) are becoming too high. The former remains true. The latter is definitely untrue because our NPL is still very low even by international standards. Image below for reference from ceicdata.com .
Article in edgeprop.my Bank Negara Malaysia (BNM) revealed that within the Jan – Sept (2019) period, banks approved housing loans worth RM119 billion for about 273,000 borrowers or which 42% were first time homeowners. Statistically, banks have been approving roughly three out of four housing loan applications which they received from households and businesses.
One major reason for rejections are due to the broader issue of home affordability, which becomes readily apparent when 72% of rejected applications were for the purchase of homes that are either seriously or severely unaffordable relative to the applicant’s income level. From the small and medium enterprise (SME) segment, banks have been approving about seven to eight out of every ten loan applications received. This has benefited 76,000 SMEs.
BNM also said that banks have a natural incentive to lend because in the case of Malaysian banks, net interest income comprises 64.8% of their gross income. This incentive continues to grow because the banks’ profit margins have come under greater pressure from other banks for market share. Thus, the ability of banks to grow their lending will be important for them to maintain their profitability. Do read the full Article in edgeprop.my
Hopefully more people understand that if banks stop lending, they will start ‘firing’ people. Profits are needed to continue hiring more people while losses or even lower profits may just meant that they have excess staffs. Just google for “bank retrenchments” and we will be able to read about all the negative news worldwide. In actual fact, this will continue because online will become every more powerful and people continue to change their banking habits. I was in a bank recently to close an account and there were NO OTHER customers in the bank except me! Happy understanding.
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Next suggested article: Banks please don’t lend if prices too high. Buyers, please do not overstretch.
