NPLs, bankruptcy expected to rise

KUALA LUMPUR: The country’s banking institutions are expected to see more cases of loan defaults next year that would likely bring about increasing number of bankruptcy orders, industry sources said.

A source familiar with the management of bad loans in the local banking industry told The Edge Financial Daily that bankruptcy cases had been “on the rise” since September, involving both individuals and companies.

“There is an increase in terms of both the number of cases and the amount owed. Most of the loan defaults involve the retail segment. There are also more and more defaults in hire-purchase loans. The number of delinquent accounts is rising.

“These rising numbers cannot be avoided. Markets are so bad. People just can’t pay. I foresee it (the number of bankruptcy) will be worse next year,” the source said.

In general, a loan in Malaysia is classified as non-performing loan (NPL) when the principal or interest is due and unpaid for three months or more from the first day of default. As such, the source said the rising number of unpaid loans in the second half of the year would only be classified as NPLs and be reflected going into 2009.

Latest data on the actual number of bankruptcy in the country could not be immediately available from the Department of Insolvency.

While some major banks have generally reported reasonable NPL figures in the first half of the year, a source said the picture of the country’s NPLs could be bleak next year.

“It takes time for the spillover effect from the failure of several US banks and global economy slowdown to take place here. It is October now, which means the year is ending. I think things will surface and get worse next year,” he noted.

A source believed that locally incorporated foreign banks might not see as much NPLs as would the local banks, with the exception of “one or two” newcomers that had aggressively extended loans to individuals who were previously shunned by major banks.

“One or two banks were quite aggressive in lending to individuals for them to buy shares in the stock market, but that was before the market crashed. Now the market crashed, so I think these banks may not look good in terms of NPL,” he said.

Gan Yen Kuan
The Edge
29/10/08