KUCHING: Banking system data from June 2021 released by Bank Negara Malaysia showed a pronounced third order movement control (MCO) impact primarily on consumption with a deceleration in credit card spending and overall loan applications .
While the negative impact of foreclosure on asset quality was somewhat expected, Macquarie Equities Research (MQ Research) continued to believe that the risk remains skewed for the non-consumer portfolio, particularly small and medium-sized enterprises (SMEs). ), while consumer assets are expected to rebound after containment.
“The third national lockdown (movement control order), MCO 3.0 which began on May 5, had a pronounced impact on banking statistics in June,” he said in his analysis yesterday.
“Credit card spending fell 19% month over month (mom) in June, to about 28% below pre-Covid levels. It’s still not as drastic as the 51% drop seen in April 2020.
Overall, loan applications slowed 12% mo in June, with consumer loan applications down 19% mo compared to non-consumers relatively stable at 2.7% monthly. “
MQ Research believes the lockdowns may have played a role in physically preventing consumers from facilitating loan applications. However, it should be noted that requests for big ticket items have fallen much more than discretionary borrowing.
“Residential mortgage applications fell 18% mo, while auto loan applications fell 50% mo,” he added. “Credit card and personal loan applications were flat, Mom.
“Meanwhile, requests for working capital loans rose 5%, during a foreclosure, indicating that businesses were still on the hunt for cash. “
Loan repayments were an early indicator of strain on asset quality. Overall, repayment levels fell 1.9 percent in June, with consumer loan repayments falling disproportionately 12 percent month-on-month.
Using historical repayment trends, MQ Research estimates that subprime consumer loans fell from 10% to 11% before the foreclosure to around 20% in June.
Note, however, that consumer loan disbursements slowed even faster, by 27% month-on-month.
While automatic loan moratoria had yet to be introduced (as of July 7 only), MQ Research predicted that banks had already started extending targeted repayment assistance to distressed borrowers.
“With the repayment assistance structure in place, however, it is unlikely that these subprime loans will write down in the short term,” he added. “At the same time, it will also artificially increase consumer loan growth, which grew 5.2% year-on-year (year-on-year) in June.”
At the same time, liquidity in the banking system remains abundant, with loan-to-deposit ratios hovering at 88% and current savings account ratios at a record level of 32%, favoring a fall in the cost of funds in 2Q21 and better net interest margins.
Growth in deposits (3.9% yoy increase) started to converge towards loan growth (3.4% yoy increase). Liquidity coverage ratios rebounded to 149 percent from 137 percent in May).
MQ REsearch said the loan loss coverage ratio remained healthy at 112 percent, while CET1 ratios of 14.2 percent remained sufficient.
“The negative impact of lockdowns on asset quality was somewhat expected, with a 10% increase in potential consumer loan repayment assistance.
“However, with resilient labor market conditions, we reiterate that risk remains skewed for the portfolio of non-consumers, especially small and medium-sized businesses. Consumer assets are expected to rebound after the foreclosure.”