[ad_1]
KUALA LUMPUR: There was a significant increase in retail equity market share, which saw retail investors buy a total of RM113.1bil worth of listed stocks in the first half of 2020, says Bank Negara.
In its “Financial Stability Review – First Half 2020” report issued Wednesday, it said its monitoring indicated that the increase in retail participation has not been financed by loans.
Loans disbursed and outstanding for the purchase of shares, including margin financing, remained low and practically stable during this period.
These loans continue to represent a small part of total household debt (0.5%) and bank loans to households (0.6%).
“There have also been no perceptible changes in the profile of borrowers from households with equity margin facilities, as they remain mostly within the higher-income segments with higher financial reserves,” he said.
Bank Negara said anecdotal perceptions suggest that some households are using excess cash reserves from relief and savings measures to invest in stocks.
This could increase the risks for households through the impact on debt service capacity and effects on wealth if the value of the shares falls substantially when households have to resume repaying their loans.
“As noted above, these risks are assessed as low as leveraged retail investors typically have higher financial reserves.
“Total household equity holdings as a percentage of LFA has also remained virtually unchanged. According to a sensitivity analysis, most households could withstand an extreme stock market shock equivalent to that experienced during the Asian financial crisis, ”he said.
Bank Negara said the automatic loan default provided many households with immediate temporary financial relief, particularly those who had lost their jobs and were experiencing declining income.
At its peak, close to 90% of family borrowers with approximately 87% of family loans outstanding in the banking system were subject to the moratorium, as most borrowers chose to defer repayments of their loans to guarantee a greater flexibility in managing your cash flows during a period of great uncertainty. .
Many of these borrowers could have continued to service their debt had they chosen to do so.
“Based on the improved financial margin framework, the Bank estimates that family borrowers who may experience difficulties (ie those with negative financial margins) in paying their debt as a result of income and unemployment shocks are unlikely to represent more than 15% of all borrowers.
“Among these borrowers, about 1% of all borrowers with 3% of outstanding family debt are expected to default after accounting for the financial buffers withheld and the targeted payment assistance that is extended to borrowers in need.
“About 40% of potential defaults arise from real estate debt with an average LTV of 70%, which limits the financial exposures of affected borrowers and losses to the banking system,” he said.
Bank Negara said that borrowers with positive equity are less likely to default on their home loans. For households with lower income and financial reserves, income support measures will continue to be important to avoid further financial difficulties.
In recent months, more borrowers have begun to resume repaying their loans as their income and employment prospects become clearer.
Many of the borrowers who recently opted out of the loan default are also those with larger loans, earning salaried income in excess of RM 5,000 per month.
Given that around 70% of household debt comprises floating rate loans, post-default debt service capacity will be supported by lower monthly debt obligations following successive OPR cuts throughout the year.
With the automatic moratorium in force, the aggregate impairment and delinquency rates remained low at 1.0% and 0.9% of total outstanding household debt, respectively (2019: 1.2% and 1.1%).
“Household asset quality is expected to deteriorate somewhat in the second half of 2020 and throughout 2021 after the automatic moratorium ends, but banks are well positioned to absorb higher credit losses.
“Asset quality is also expected to continue to be supported by the transition to more targeted assistance measures and gradual improvements in income and employment prospects,” he said.
[ad_2]
