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Banks unlikely to post losses despite expected spike in provisions

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LAST Thursday, Malaysia Building Society Bhd (MBSB) reported a first-quarter net loss of RM73.25 million owing to higher provisions for potential loan losses. It is the first local banking group to report a quarterly loss since the Covid-19 onslaught.

The development has raised concern among some as to whether more banks, especially the smaller ones, may be headed the same route.

Analysts whom The Edge spoke to, however, do not think this will be the case. While banks are expected to make higher provisions, particularly after the six-month loan moratorium ends in September, this will likely result in lower earnings rather than losses, they say.

“The reality is that a lot of them could [fall into a loss], but it all depends on how they manage their provision levels. I think they can [manage it]. At the end of the day, we’re still in the loan moratorium period, so technically, they can space out their provisions because they don’t have a good picture yet of what the [stress levels of their borrowers] are like till towards the end of the moratorium. Banks are already guiding for high loan loss provisions this year. So, now, it’s a question of whether it ends up being more than what was anticipated,” a senior banking analyst remarks.

Of the major banking groups, only AMMB Holdings Bhd has yet to report its financial results for the January-to-March quarter. All eyes are now on the banks’ second-quarter financial results, though the worry is mainly for the final quarter, post-moratorium.

In the case of MBSB, its president and CEO Datuk Seri Ahmad Zaini Othman says it was the group’s property segment, rather than personal financing, that was the main problem. Despite a year-on-year improvement in first-quarter revenue of 1.95% to RM741.41 million, it recorded a net loss of RM73.25 million compared with a net profit of RM83.83 million in the same period a year ago.

Its net allowance for impairment charges almost doubled to RM291.78 million from RM153.02 million.

“What hit us was the property and construction financing, on the corporate side. In March, a lot of people already knew bad times were coming, so they stopped buying properties. So now, a lot of these developers are having cash flow problems because of no sales. And when there are no sales, there’s also no end-financing [opportunities] for us. So, it’s a chain reaction. If you put all of these together, because of the vulnerability of that particular segment, you need to make the credit losses provisioning, so we got hit,” Ahmad Zaini tells The Edge, when asked about the losses.

He says it took a toll on the group as, unlike most banks, MBSB has a relatively smaller revenue base.

“We are just two years old as a bank and we’re still in the midst of building up our revenue streams. Our revenue base is principally [made up of] personal financing, some corporate financing and, of course, mortgages. So, with high expected credit losses (ECL) and all, we ended up posting a loss,” he adds. Property financing accounted for 15.2% (RM5.73 billion) of the group’s RM35.42 billion total gross financing.

This is the first time in a long time any of the public-listed banking groups has posted a quarterly loss. According to an analyst, the last time was probably in 2006, when BIMB Holdings Bhd posted a net loss of RM1.1 billion in the March-to-June quarter — following several quarters of losses — due to bad credit management in the past that resulted in high non-performing loans. BIMB owns Bank Islam Malaysia Bhd.

In a June 18 report, AmInvestment Bank Research notes that in 1Q2020, provisions for loan impairments for the six banking groups that had reported earnings at that point — Malayan Banking Bhd, CIMB Group Holdings Bhd, Public Bank Bhd, RHB Bank Bhd, Hong Leong Bank Bhd and BIMB — rose by 115.4% quarter on quarter, or RM1.23 billion.

“[This was] largely due to: (i) the increase in pre-emptive provisioning by most banks for the impact of Covid-19. Banks have factored in the weaker macroeconomic data, resulting in higher ECL, and hence the need for increase in provisions; and (ii) higher provisions of CIMB contributed by the full provision of RM430 million for the default of loans extended to an oil trader in Singapore,” it says.

Last Thursday, Alliance Bank Malaysia Bhd said net profit for its fourth quarter ended March 31 fell 12.3% y-o-y to RM98.06 million due to higher allowance for ECL on loans of RM98.29 million compared with RM39.92 million before. This was despite a 7.7% increase in revenue to RM432.41 million.

In a June 23 report, CGS-CIMB Research says it is now projecting a 72% y-o-y surge in provisions this year for the banks under its coverage. There could be a risk of banks’ loan loss provisions staying elevated in 2021 as their gross impaired loan ratio could spike in 4Q2020 with the conclusion of the loan moratorium period.

Moody’s Investors Service shares the view. “We expect an increase in problem loans after the lifting of the moratoriums; however, the magnitude of the increase is difficult to assess at this stage. Based on our analysis, most rated banks in the Asean-5 [Malaysia, the Philippines, Indonesia, Vietnam and Thailand] can weather at least a doubling of problem loans, provided that the credit provisions are spread over two to three years. In such a scenario, regulators would likely allow a gradual build-up of provisions or relax capital norms, or both,” it says in a June 25 report on the Asean region.

It notes that, within the region, Malaysia makes the most extensive use of debt moratoriums. On the one hand, debt moratoriums help avoid a negative scenario in which banks have a high level of problem loans in a short period of time and low recovery rates on repossessed collateral. “[But] at the same time, extensive moratoriums — particularly automatic ones — prohibit banks from dealing with problem borrowers at an early stage, [which is] a credit negative,” says Moody’s.

It adds that more than 70% of the Malaysian banking system loans as of the end of 2019 will fall under the moratorium.

The loan moratorium will avert a rapid deterioration of banks’ asset quality in the near term, Moody’s vice-president and senior credit officer for financial groups in Asia, Alka Anbarasu, tells The Edge in an interview. Given that Malaysian banks can also restructure and reschedule loans until the end of this year without classifying them as impaired, a deterioration of asset quality will likely become more evident only from 2021, she says.

CGS-CIMB sees Public Bank as being the most defensive against a rise in provisions.

“Given the economic headwinds from the Covid-19 pandemic, we are favouring banks that are more defensive against a rise in loan loss provisioning. We see Public Bank as the best positioned for this, substantiated by the results from our stress tests. Public Bank is also guiding for maximum credit charge-off rate of 15 basis points in FY2020, one of the lowest among its peers.”

 

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Virginia Used Car Dealer Offers Local Drivers Reliable Pre-Owned Vehicles and Affordable Prices

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Used Cars Under $10,000 in Virginia

Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

There are many ways for people to save money when shopping for the things they need and can’t live without. For many people, a vehicle that can offer them the reliability they need is incredibly important and something they require every day. Drivers in Virginia that are searching for affordable used cars under $10,000 now have a dealership they can turn to that will help them get behind the wheel of a reliable vehicle they can afford. Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

With used car specials that offer affordable pricing and a large inventory of pre-owned vehicles that can be purchased for under $10,000, drivers will be able to find the vehicle they’ve always wanted to drive at a price that fits their budget. Karen Radley Volkswagen also helps make buying a reliable and budget-friendly used car easy by offering used car loans to drivers regardless of their credit score. Good or bad credit car loans are fast and easy to obtain and apply for when shopping at Karen Radley Volkswagen.

To learn more about how to get behind the wheel of an affordable used car in Virginia, or to view the current inventory of used cars under $10,000, drivers can visit the local dealership’s website by going to http://www.karenradleyvw.com. Questions can be directed towards the sales staff by calling 833-243-5895. Shoppers may also see all the used cars at Karen Radley Volkswagen by driving to 14700 Jefferson Davis Highway.

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Legislation to Combat Unfair Auto Insurance Rates Clears Committee

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Legislation to Combat Unfair Auto Insurance Rates Clears Committee

 

Trenton – In response to high automobile insurance assessments, the Senate Commerce Committee passed legislation sponsored by Senators Nia Gill, M. Teresa Ruiz, Nilsa Cruz-Perez, and Nellie Pou, which would prohibit the use of education, occupation, homeownership status, marital status, or credit score in certain automobile insurance determinations.

 

“The use of factors such as employment status and credit score in calculating insurance premiums carries a severe economic consequence for working-class families. A person’s income or education has no bearing on driver safety or risk and only serves to reinforce existing inequalities,” said Senator Gill (D-Essex/Passaic). “The pandemic has given new importance to how we determine eligibility. Millions of New Jerseyans are experiencing economic hardship; this will inevitably impact their credit scores, occupation, and employment status. This bill is critical to ensure people are not subject to increased premiums based on metrics that have nothing to do with driving, and it will ensure drivers are not subject to increased premiums based on unforeseeable consequences of the pandemic.”

 

The bill, S-111, would prohibit automobile insurers from assigning an insured or prospective insured person to a rating tier based on educational level, credit score, marital status, homeownership status, or employment, trade, business, occupation or profession.

 

“Newark has some of the highest car insurance rates in the country. Under our current laws car insurance companies are preying on New Jersey’s most vulnerable, charging low income customers significantly more regardless of their driving history. Every sponsor has done tremendous legwork to bring an end to this harmful practice. I am proud to have been a driving force in the final push to move this important legislation and to ensure it included prohibiting the use of credit scores,” said Senator Ruiz (D-Essex). “Insurers should be basing their rates on the likelihood that someone will be in an accident, not his or her ability to pay for those damages out of pocket.”

 

“It is absurd that someone with a bad credit score pays more for car insurance than someone who has been convicted of a DUI,” said Senator Cruz-Perez (D-Camden/Gloucester). “We cannot allow insurers to continue basing rates on credit history or socioeconomic status rather than someone’s driving record.”

 

“We must stop penalizing people for being poor,” said Senator Pou (D-Bergen/Passaic). “This legislation will hold insurance companies accountable and help to ensure that our most vulnerable citizens are given fair pricing for policies that are a requirement to drive.”

 

The bill would take effect 90 days after enactment.

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Reasons You Can Be Denied for a Bad Credit Auto Loan

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Everyone’s situation varies, but there are some circumstances that bad credit auto lenders simply don’t accept. To give you an idea of what to expect when you apply for a car loan, here’s what subprime lenders tend to require and what situations they don’t accept when determining your eligibility for auto financing.

Job Situations and Bad Credit Car Loans

First, it’s important to note that all lenders have different work, income, and even residency requirements. However, if you’re applying with a bad credit car lender, also known as a subprime lender, they tend to follow similar guidelines for who they’re willing to approve for auto financing.

When it comes to your work situation and what type of income you’re bringing in each month, there are some situations that subprime lenders simply don’t accept.

No Income at All

If you’re not bringing in any income from a job or any other type of assistance, expect to be turned down. Any car lender, bad credit or not, is going to need you to provide proof that you have a stable income.

Some subprime lenders can accept income such as alimony, permanent disability, pension, and even public assistance – if you can prove that you’re going to receive it for the entire duration of your auto loan term, that is.

To get into a car loan, you must have provable, consistent income that can support the auto loan the whole time you’re repaying it.

Sparse Work History

This requirement can vary, but borrowers who haven’t held down the same job for around six months to a year can often be turned down for a car loan. Auto lenders typically also require you to have consistent work history over the last three years.

Subprime lenders look for stability in your work history and employment. The longer you’ve held the same job in the same line of work, the higher your chances of getting approved for a car loan.

Brand-New Job

If you just started a job in a new field, then a subprime lender may be hesitant to approve you for financing. Subprime lenders prefer borrowers who’ve been at the same job for at least six months to a year.

However, if you recently switched employers but it’s in the same line of work, then they’re more likely to be understanding of that situation.

Living Situations and Bad Credit Auto Loans

Situations That Can Deny You a Bad Credit Car LoanAlong with having work and income requirements, subprime lenders also take a look at your residence history. While living situations can vary greatly, they are again looking for stability.

A stable borrower is one that is more likely to repay their auto loan. So, the longer you’ve been living in the same area, the higher your chances for an approval. However, just because you’ve lived in the same town for 20 years doesn’t always mean you meet the residency requirements.

Here are a few living situations that subprime lenders probably won’t accept:

You’re Not a Homeowner or a Renter

To meet residency requirements, most subprime lenders require that you’re a homeowner or a renter. If you’re a homeowner, you must prove your residency with a recent utility bill in your name, or maybe even a home title in your name if you don’t have any utilities in your name.

If you’re a renter, then your name must be on the lease. You should also expect to need a recent utility bill in your name to prove your residence. Some lenders may even require a copy of a lease agreement, a mortgage statement, or a copy of a house payment/rent check.

However, if you live with relatives or you live at an apartment where your name isn’t on the lease, then it could be more difficult to qualify for a car loan. Subprime lenders require that their borrowers have a permanent address, with documents that prove that you live there. If you don’t have any utilities in your name, or your name isn’t on a lease or mortgage statement, then you could run into trouble getting approved for auto financing.

You Don’t Have a Permanent Address

Some people live in RVs, or even hotels, to accommodate a nomadic lifestyle. While having the flexibility to move wherever you’d like at the drop of a hat suits many people, the sad news is that these unconventional ways of life aren’t likely to meet the requirements of a car lender. Since your address isn’t permanent, it can make a subprime lender hesitant to approve you for financing.

Other Requirements of Subprime Lenders

There could be many different reasons why a lender can deny you for an auto loan. To help you be best prepared, here’s a list of other common requirements of subprime lenders:

  • Must have a cell phone or landline phone in your name (no prepaid phones)
  • Have to make a down payment of at least $1,000 or 10% of the vehicle’s selling price
  • Bring a list of five to eight personal references with complete contact information
  • Must have a valid driver’s license with your current address

Subprime Lenders and Bad Credit Car Dealerships

If your credit is worse for wear, you’re likely to have a better chance of getting approved for a car loan if you apply with a subprime auto lender, since they consider more than just your poor credit score while they determine your eligibility for a car loan.

Where are subprime lenders? They’re signed up with special finance dealerships, and they are more prominent nowadays. Here at Auto Credit Express, we know what dealers are signed up with subprime lenders, and we can look for one in your area at no cost.

Fill out our free auto loan request form, and we’ll get right to work looking for a dealership near you with the bad credit lending resources you need.

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