Growth in personal loan segment causing concern

CONCERN seems to be building with the year-on-year (yoy) portfolio growth seen in the personal loan sub-segment of the lending business in the country. The risks to holding these in a lender’s portfolio have generally been acknowledged and recognised in the industry given their volatile nature especially during an economic slowdown.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2013/5/25/business/13145831&sec=business
Published: May 26, 2013

Despite this, there has been considerable focus on the segment as industry players do not want to “miss out” on the growth opportunities in this lending segment.

The possible downside to having a large personal loan portfolio in a lender’s account has also lately been acknowledged by Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz in her public statements.
In a media briefing held recently, Zeti had made special mention of the growth seen in personal loans in the industry.

Indeed, Zeti is not alone in her analysis of the situation as analysts that spoke to StarBizWeek say the increased focus on the segment is “warranted” although they did caution against too much direct intervention as the country is operating in an open economy.

While there is overall growth in the industry, non-bank lenders’ growth in personal loans is seen outpacing bank-backed lenders in recent times.

The growth is apparent among non-bank lenders and these companies are seen to have tapped mainly on the country’s civil service’s earning power and to a certain extent selected government-linked conglomerates.

“There has been an increased focus on this segment especially with the hike in civil servant’s salary of late,” says a banking analyst who did not want to be named.

Other analysts are however more sanguine on the situation, noting that the annual growth in personal loans among non-bank lenders is in line with industry forecasts.

Kenanga Research analyst Chan See Kit tells StarBizWeek the growth in personal loans among non-bank lenders that averaged about 20% over the past two years is “not an immediate concern”.

“This high growth is within expectations and I do not see significant upside risks to non-performing loans at the moment on the back of asset quality lately,” Chan said.

“Compared with other loan segments, personal loans usually have high exposure to bad loans. This can happen in good or bad times,” one analyst says.

This could also be the reason why bank lenders have kept this segment under close scrutiny.

The latest banking statistics released at the beginning of this month for March 2013 show year-on-year loans growth for personal use easing slightly to 9.1% from 9.3% in the prior month.

Loan approvals for personal use, meanwhile, eased to 9% from 11.6% recorded in February 2013. This is in line with the easier overall banking industry loan growth of 10.6% yoy in March 2013 compared with 11.4% in the prior month.

In the non-business segment, loan growth declined slightly to 12.1% yoy in March from 12.2% in February.

Despite the fall, upbeat industry watchers say the loan growth is still in the “double digit” zone after all or at least close to that in the case of personal loans.

They point instead to the growth in personal loans among certain lenders that have seen these double-digit growth figures grossly outperforming the wider industry by preposterous proportions in recent times.

Given the scenario, a short-term portfolio rebalancing could be on the cards although it is unclear at this stage if this will be initiated by the regulators or by the industry players themselves.
Internal sources indicate that management of some of these lenders is aware of the situation and are taking active steps toward the improvement of processes namely in the broad areas of risk and growth requirements.