Banks are becoming wary as the end of the moratorium on loan repayments nears and unemployment increases.

The Department of Statistics Malaysia has revealed that 778,000 Malaysians are unemployed, as both the local and global economies are reeling from the effects of the Covid-19 pandemic with no end in sight.

Independent personal finance website co-founder Jared Lim told Property Advisor that there has been a significant drop in loan approvals across the board, including housing loans, hire purchase, personal loans and small and medium-sized enterprise (SME) loans since the pandemic began.

“As we came out of the Movement Control Order (MCO), banks naturally became extremely cautious. They automatically rejected anyone working in certain industries, including aviation, hospitality, tourism, food and beverage, as well as oil and gas.

“With the six-month moratorium on loan repayments, banks cannot gauge a borrower’s ability to withstand the economic shocks and repay their loans.”

He said every bank is still figuring this out at the moment, and their approach will evolve once the moratorium ends as many adopt a wait-and-see approach.

“We have noticed that, currently, borrowers with a permanent job at a multinational corporation that is not active in the aforementioned categories make up the majority of people whose home loans were approved.”

He added that the property and vehicle markets are likely to be hit hard by the tightening of credit.

CEO of REI Group of Companies, Dr Daniele Gambero, said the worst affected will be the middle class. “The strongest demand has been and is for properties priced from RM250,000 to RM700,000 (depending on the state).

“These properties are within reach of the M40 and the top 10% to 15% of the B40 income group. The rest of the B40 group is, once again, left behind.

“Banks are expecting a rise in non-performing loans (NPLs) as many businesses have closed or reduced their number of staff.”

He fears the worst is yet to come, and a surge in NPLs could begin from next month, stretching to the first quarter of 2021.

“Banks are fundamentally concerned about two things: insolvency of borrowers and a drop in property values, which will leave banks not fully covered for their risk.”

Lim predicts that loan approval rates during the Recovery MCO phase will be low until banks can see what the landscape is like once the moratorium ends.

On the property market, he said, “We will see higher cancellation rates and lower buyer confidence. It’s a bad time now for the industry.”

Gambero said the low loan approval rates are causing developers much pain.

“They were coming out of a period of almost no sales (MCO and Conditional MCO) into seeing decent sales and bookings (motivating and creating optimism), only to regress again as most loans were not approved.

“The impact is definitely negative and, in the worst-case scenario, might cause a surge of projects being abandoned.”

Increasing the chances of getting a loan approved’s Lim said getting a loan approved is all about convincing the banks that one is good for the money.

“Many people might be thinking of taking the optional extension to the moratorium or asking for a restructuring, even if they do not need it.

“Don’t! It is not yet known for certain how banks will view those who opt for restructuring under the extended moratorium. Our guess is that it will negatively impact the chances of applying for another loan in the near future.”

He said those with variable incomes every month (business owners, property agents, insurance agents and freelancers) must have solid documentation for all their sources of income.

“Another important thing is to declare the full income and pay taxes in a way that reflects how much the person says they earn in their application to the bank. None of the documentation matters if the income tax is under-declared.”

REI’s Gambero said that the rules of engagement with banks for a housing loan have not changed much since the pandemic.

“The best advice is be a good paymaster, do not overuse a credit card and do not commit to too much. Make sure one has proof of all income.

“In addition, avoid projects offering an excess of cashback as that can be dangerous, or projects that are overpriced for other reasons – fully furnished, zero entry and so on.

“Also, check one’s loan eligibility with a banker friend before committing to an official booking.”