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Household loan impairments to double in 2H21 — BNM

KUALA LUMPUR (Oct 14): Household loan impairments are projected to double, albeit from historically low levels, said Bank Negara Malaysia (BNM) in its latest Financial Stability Review.

“Higher household impairments are expected to emerge in the second half of 2021 (2H21) given the extended repayment assistance programmes that will remain in place through the first quarter of 2021 (1Q21) for individuals who have experienced a loss in income,” said the central bank in the report for 1H20.

The scenario formed part of the findings of the latest stress test conducted by BNM, an integral component of the central bank’s financial stability framework used to assess and manage risks to financial stability.

Overall impairments could rise to above 4% of loans by end-2021, mainly driven by the business segment, as a result of economic and financial shocks from the Covid-19 pandemic, according to a macro stress test conducted by the central bank.

The stress test took into account effects of the blanket moratorium implemented in April and subsequent targeted repayment assistance for individuals announced by banks in August, according to the central bank’s report.

The review said business impairments are expected to be driven by defaults of maturing bullet repayments of firms operating in vulnerable sectors, mostly in the services industry that is expected to experience a slower recovery, as well as exposure to several large borrower groups with weaker financials.

The central bank’s latest macro stress test examined potential losses for the banking system due to the assumed impact of a recovery path derived with reference to the bank’s updated macroeconomic outlook.

“Under this scenario, growth is assumed to have troughed in 2Q20. With the reopening of the economy in early May, the economy is then assumed to gradually recover in 2H20 and register a rebound in 2021 amid global growth recovery aided by a series of stimulus and financial relief measures introduced by the government and the [central] bank,” it said.

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