CLICK TO ENLARGEPETALING JAYA: The banking sector may see more writebacks next year as financial institutions turn prudent.
Banks are also expected to maintain provisions as a preemptive measure this year.
It is noted that banks are likely setting aside the preemptive provisions against potential credit losses as the Covid-19 pandemic continues to cast uncertainties on the global economy.According to AmInvestment Bank Research, provisions grew 36.3% year-on-year (y-o-y) in the first half of 2021.
“Banks continued to top up management overlays, which comprised 40% of the total provisions.
“Even though provisions were still elevated, it was lower than 2020’s 42% y-o-y growth,” AmInvestment Bank Research said.
The case for writebacks next year is supported by weekly applications for repayment assistance by both retail and small-and-medium-enterprise borrowers that have tapered after an initial surge with the introduction of the Pemulih moratorium in early-July, the brokerage said.
AmInvestment Bank Research provided its commentary following a briefing update by Bank Negara the Financial Stability Review (FSR) for the first half of 2021.
On the outlook for loans growth, AmInvestment Bank Research expected the figure to remain subdued in the third quarter and that there would also be additional modification losses due to the implementation of the Pemulih loans moratorium.On the outlook for loans growth, AmInvestment Bank Research expected the figure to remain subdued in the third quarter and that there would also be additional modification losses due to the implementation of the Pemulih loans moratorium.
“It will be reflected in the upcoming third quarter results of the banks. Further to that, the fourth quarter will likely see a reduction in interest income of banks due to the implementation of the three-month interest waiver for retail loans under the moratorium where borrowers are in the B50 segment.
“Also, higher Malaysia government securities’ yields will present challenges to investment and trading income,” it said.
However, the research house said loans growth will gradually pick up pace in tandem with the economic recovery since lockdowns have been eased.
“We see a potential for write-backs in management overlays which banks have built up since 2020,” it highlighted.
Meanwhile, TA Research expected most banks to maintain a conservative stance and exercise lending caution in the near future.