ABM 'strongly refutes' claim that banks are responsible for space glut

KUALA LUMPUR (Sept 11): A banking industry group has come out to "strongly refute" the claim by a property expert that banks are responsible for the oversupply of retail and office space in the Klang Valley.

"We also object to the allegation that banks had been giving out loans for the development of commercial properties without due diligence," the Association of Banks in Malaysia (ABM) said in a strongly-worded statement on Friday.

As for the due diligence, ABM said its 27 commercial bank members have placed stringent processes for credit risk assessment, which is further supported by sound lending and valuation practices.

"Thorough credit analysis is performed before any financing for commercial properties is granted. This may include, but are not limited to, conducting project feasibility studies performed by independent parties or in-house commercial property experts, marketability and competitors' analysis, assessment of economic and market developments, as well as repayment capability, to ensure the viability of the project," added ABM.

As for the banks' role in financing the development of commercial properties and shopping malls, the association said it requires an "elevated degree of risk assessment and higher approving level".

ABM added that banks have a relatively low appetite to finance such projects.

"Generally, these banks would not finance shopping malls unless they form part of the integrated wider financing requirement e.g. township development or high rise residential development," the association explained.

ABM was responding to property expert Ernest Cheong's recent claim published in an online news portal, questioning the validity of the demand for commercial and retail space in the Klang Valley, saying that the glut "will hurt the economy" and the smaller retail malls will eventually go through a "slow death".

Cheong was also quoted as saying that the banks had, in the last four to five years, dished out loans for the development of commercial properties without due diligence.

Cheong's claim was related to a recently released bi-annual report by Knight Frank Malaysia Sdn Bhd, which provides comprehensive analysis of the residential, retail and office markets in the country's major cities.

In the report, Knight Frank Malaysia said: "With the property market slowdown, tightened lending conditions and cautious attitude of local buyers, many developers have held back new launches."

Going forward, ABM stressed that banks are only one part of the ecosystem that is responsible for the creation of these properties.

"Banks are also certainly not the (only party) that is responsible for the creation of the entire supply of and demand for such properties," said ABM, calling on all stakeholders to work collaboratively in addressing the commercial space glut more effectively. — theedgemarkets.com

For more stories, download TheEdgeProperty.com pullout here for free.