Investment Highlights

• Bank Negara Malaysia (BNM) provided an update on the release of its Financial Stability Review (FSR) 2H2021 yesterday.

• 4Q21 saw an improvement in the financial performance of businesses compared to 2Q21. This was reflected by the increase in operating margin to 7.6% and interest coverage ratio (ICR) to 7.5 times in 4Q21. Meanwhile, cash-to-short term debt ratio was stable at 1.4% and debt-to-equity ratio was lower at 21.8%.

• Nevertheless, the recovery remained uneven across business sectors. Hotels and restaurants recorded improvement in financial performance in 4Q21 supported by the removal of mobility restrictions. The construction, real estate, mining and quarrying sectors will be closely monitored. Banks have been proactive in engagements with borrowers, loan classifications and in restructuring and rescheduling (R&R) of larger corporate loans to manage risk. Also, provisions (management overlays) have been set aside for vulnerable corporate borrowers.

• The share of firms at risk has trended lower. It declined to 20.9% in 4Q21 compared to the peak in 3Q20 of 31.9% underpinned by lower leverage, cost controls and the economic recovery. Corporates have taken up lower new debts.

• SMEs accounted for 95.0% of the total business loans under repayment assistance (RA). The elevated share of SME loans under RAs persisted, amounting to 36.5% of the total SME loans or 5.7% of the combined loans of banks and DFIs.

• New applications for R&Rs from SMEs declined sharply from more than 40,000 in July 2021 to 1,000 as at the end of Dec 2021. This reflected the improvement in SMEs repayment capacities after containment measures were lifted and the economy reopened.

• The percentage of business loans in stage 2 climbed to 16.7% in 4Q21 vs. 15.6% in 2Q21. On a comforting note, the impaired loan ratio for business loans remained low at 2.4%.

• Numerous assistance continued to be available to assist SMEs. These included funds for SMEs, credit guarantee schemes and debt resolution programmes.

• The household debt-to-GDP ratio inched lower to 89.0% in 4Q21 (2Q: 89.6%) largely attributed to higher nominal GDP. The ratio was higher compared to those of Singapore, Indonesia and the Philippines.

• Debt-servicing capacity of households continued to hold up at 44.0% for new approved loans and 35.0% for outstanding retail loans.

Source: AmInvest Research - 31 Mar 2022