All eyes on non-performing loans

PETALING JAYA: Although the sale of non-performing loans (NPLs) by the country’s banks is rare, it is an area to watch closely as loan moratoriums come to an end, according to the management company of the Collectius debt.

Collectius Malaysia managing director Leong Yam Meng told StarBiz that he thinks NPL sales is a space to watch with the end of loan moratoria as banks begin to get a clearer picture of their NPL positions in the coming months.

The company recently completed the first NPL transaction involving a bank in Malaysia this year, and the first in the market since CIMB Group Holdings Bhd. sold some of its NPLs in 2020.

The process, which was approved by Bank Negara, involved a global bank in Malaysia selling a portfolio of NPLs to Collectius.

Regarding the sale of NPL by banks, Leong said: “Although rare, we have seen several Malaysian banks before the Covid-19 pandemic such as CIMB Group Holdings Bhd, the second largest banking group in the country, sell a small part of its NPLs. in 2020.

“Apart from that, in 2019, AMMB Holdings Bhd sold NPLs of its two subsidiaries, AmBank (M) Bhd and AmBank Islamic Bhd, to Aiqon Capital Group Sdn Bhd for a value of RM553.91 million.

Leong added that overall, the sale of NPLs has always been rare in Malaysia and is a tightly controlled process requiring approval from Bank Negara.Leong added that overall, the sale of NPLs has always been rare in Malaysia and is a tightly controlled process requiring approval from Bank Negara.

“However, our recent acquisition of NPL from a global bank on a secure wallet was the first to be completed this year and was approved by the central bank.”

As to whether the company is in discussions with other banks in Malaysia to buy NPLs, he said Collectius is still in contact with the banks and talks are ongoing, but the conclusion of a sale agreement debt can take anywhere from eight months to a year.

Compared to last year, he said there were fewer banks in talks to sell their NPLs as they are in no rush and closely monitoring the global economic situation.

However, he said the company expects to close a deal by the fourth quarter of this year or the first quarter of 2023.

Global banks, he said, are also undertaking mergers and acquisitions (M&A) which can lead to the disposal of NPL accounts which are long overdue.

Local telecommunications giants have also launched mergers and acquisitions, which shows how big companies are consolidating their presence to increase their competitiveness, he noted.

While NPLs at telecoms may not be as high as banks in terms of ticket size, he said it’s also possible they’re getting rid of bad debt accounts to wipe their books. .

Leong added that overall, the sale of NPLs has always been rare in Malaysia and is a tightly controlled process requiring approval from Bank Negara.

“However, with the release of the Financial Sector Blueprint 2022-2026, the central bank is seeking to remove the current foreign capital limit requirement for buyers to attract more established international players to enter the market.

“This would mean an increased ability of the market to absorb NPLs, which is welcome given the uncertain macroeconomic outlook we currently have,” he noted.

Regarding the particular sectors in Malaysia where Collectius expects more NPL sales to come, Leong said consumer banks would be the main sector.

He said the automotive industry is another sector due to the growing number of automotive brands providing loans that could be considered potential sellers of NPLs.

Additionally, he said, with the growth of lending options and individuals shifting away from banks to other alternatives, the Buy Now Pay Later (BNPL) segment is also an area where Collectius could add value in terms of buying NPL.

“With the growing popularity of BNPL, it is likely that this segment will start selling NPL in the coming times,” Leong said.

Regarding the fabric of the domestic debt market and why it is different from what it was five years ago, he said people are borrowing not just from banks but from many other places.

He said accelerating digitalization has introduced a host of platforms by BNPL players, telecom operators, auto companies offering direct credit and peer-to-peer lending options to consumers.

In this regard, he said Malaysians have more scope to borrow against discretionary spending and given the lower penalties for defaulting on these loans, more defaults can be expected. payment.

According to the Ministry of Finance Economic Outlook 2022 Report, in 2021 household borrowing increased by 41.6% to RM126.9 billion while loan disbursements increased by 10.5% to RM126.9 billion. RM184.7 billion, significantly for consumer credit (11.4%), purchases of residential properties (5.5%) and passenger cars (2.7%).

Collectius is a leading debt management company and restructuring partner for financial institutions in Asia.

It has a presence in the Philippines, Malaysia, Thailand, Indonesia, Singapore, Vietnam, and most recently India, serving approximately five million customers.

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