PETALING JAYA: Non-residential mortgages (NRMs) are not expected to pose any significant risk to banks as these only account for a small portion of the system’s total loans.
In a report to clients, CGS-CIMB Research said NRMs only accounted for some 12% of banks’ total loans and its gross impaired loan (GIL) ratio was low at only around 1.46% as of December last year.
“We do not see significant risk from NRMs for banks,” it said.
It also noted that based on latest data, a sizeable 40.3% of NRMs was for the financing of shophouses, which carries lower credit risks, in its view.
On the whole, it is expecting banks’ total GIL ratio to increase from 1.44% in December 2021 to 1.8%-2% in December 2022, as lenders unwind their repayment assistance for borrowers.The increase, the research house said would mostly come from individuals and small medium enterprise borrowers whose financial positions have been severely impaired by the Covid-19 outbreak.
In the report, the research house noted that the banking industry’s NRM posted a five-year compounded annual growth rate (CAGR) of only 2.1% from 2016 to 2021, less than half of the five-year CAGR of 4.7% for the industry’s total loans over the same period.
This caused the proportion of NRM (over total loans) to decline from 13.7% at end-December 2016 to 12.1% at end-December last year.
Going forward, it expects the proportion of NRMs to continue to contract as it does not foresee any strong recovery in the growth of NRM.
CGS-CIMB Research in the report also noted that among the six Malaysian banks under its coverage (excluding AMMB Holdings Bhd and Bank Islam), Public Bank Bhd (PBB) had the largest exposure to NRM, which accounted for 22.8% of its total loans in the financial year 2021(FY21) while Malayan Banking Bhd’s (Maybank) 7.1% was the lowest.
“However, PBB’s NRM GIL ratio was the lowest at 0.2% in FY21 and the highest in FY21 was 4% for Affin Bank Bhd,” it noted.
In terms of growth, the five-year CAGR in NRM (from FY16 to FY21) was the fastest at 5.2% for RHB Bank Bhd while Maybank’s NRM contracted by a five-year CAGR of 1.2% from FY16 to FY21.
It added that it was “not concerned” about PBB’s high exposure to NRM as its NRM GIL ratio of 0.2% was the lowest in the sector as most of its NRM borrowers were of “high quality” with strong repayment capabilities, due to PBB’s stringent lending practices.
It also said it believed that most of PBB’s NRMs were for the financing of owner-occupied commercial properties.
On the whole, CGS-CIMB is retaining its “overweight” call on the banking industry with its top picks for the sector being Hong Leong Bank Bhd, RHB Bank and PBB.