Investment Highlights

• BNM provided a briefing update on the release of its publication on 1H2022 Financial Stability Review (FSR) yesterday.

• Domestic economic growth is improving with the resumption of economic activities. However, the pace of economic recovery faces challenges from external developments. These include the US monetary policy tightening which has weakened the ringgit, slowdown in China from Covid-19 restrictions and higher inflation due to the Russia-Ukraine conflict which has increased commodity prices. Locally, domestic economic activities have normalised to pre-Covid levels. Most households and businesses exited repayment assistance (RA) programmes to resume servicing their loans. Credit risk to the slowdown in China has been contained as a result of the minimal exposure to the country’s property development by local banks.

• 1H2022 saw higher business loan growth with the improvement in key financial indicators of businesses. In 1H2022, business loans grew by 5.5% YoY, driven by demand for working capital financing. Loans to SMEs expanded by 7.5% YoY. The overall SME loans approvals rate at 80.2% has recovered to pre-pandemic levels. For businesses, operating margins rose to 7.3% while the increase coverage ratio (ICR) strengthened to 7.1x. Also, improved were cashto-short-term-debt (CASTD) ratio to 1.5x and debt-to-equity ratio to 21.5%.

• Recovery remains uneven across businesses with firms in the hotel & restaurant, construction and real estate sectors still facing challenges. These 3 sectors have lagged behind the recovery of other segments, attributed to higher cost pressures, shortage of labour and weaker domestic currency. Although the overall share of firms-at-risk has increased to 24.1% vs. the 5-year average (2015-2019) of 21.4%, it was still lower compared to the peak of 31.9% in 3Q20.

• As of June 2022, 93% of SME loan accounts have exited RA with 7% missed payments. The share of SME loans under RAs to total SME financing decreased to 13.1% in June 2022 vs. 30.9% in Dec 2021. The percentage will be lower at 2.3% if it was based on total combined loans of banks and development financial institutions (DFIs). Of the 7% SME loan accounts which have exited RAs and missed payments, only less than 2% have become impaired. This equates to 0.3% of the total SME loan exposures of banks.

• Impairment ratio for SME loans was 2.8% as of June 2022 slightly higher than the 5-year average (2015-2019) of 2.7%. For SMEs which have exited the RA, the impairment ratio was 2.1%.

Source: AmInvest Research - 6 Oct 2022