Nonperforming Loans in Malaysia’s Commercial Banks: Analysis of Trend and Issues

Abstract

Inability of the banks to monitor the loan properly and efficiently might cause a tendency of nonperforming loans to keep rising in the banking system. This will indicate the failure of banks in managing their performance and operations. The involvement of banks in providing aggressive lending without following the proper credit assessment and negotiated credit terms when dealing with the activities can contributes to the severity of the problem of nonperforming loans in Malaysia. Therefore, this descriptive study is aimed to analyze the trend and issues of nonperforming loans in Malaysia's commercial banks. Using a descriptive method, diagram analysis, discussion and issues are used to support the study. Finding of the study indicates that bank characteristics and economic condition especially during the crises can contribute to the increasing amount of nonperforming loans in Malaysia's commercial banks. It is suggested for the banking sector to focus on the internal bank characteristics to strengthen the commercial banks and the government need to increase the stability of macroeconomic conditions to avoid the problems during the unexpected crisis. In the future research, empirical study can be done to investigate the impact of the issues on the non performing loans.

Pre- Pandemic Evidence from Conventional Banks in Malaysia on the Causes of Bank Specific Factors of Defaulting Loans

“…The preceding crisis has brought attention to the escalating trend of nonperforming loans, particularly in relation to family debt. The ratio of nonperforming loans had a significant rise, growing from 24.5% in 2003 to 48.9% in 2007 (Zulkifli & Ahmad, 2022). The banks' performance has experienced a decline as a result of the substantial accumulation and continual increase in nonperforming loans over time.…”

Evaluating the Interaction of Bank Characteristics and Unexpected Crises on Nonperforming Loans in Malaysia

“…The outbreak of this crisis due to the infectious disease (Covid19) that spreading over the region and country distracts the way of bank operates their businesses as loan growth, earnings, provision, and liquidity are affected (Deloitte, 2020). The presence of crises affects the borrower's ability to repay the debt and raises the number of outstanding loans that continue to increase as well as increasing banking liquidity (Zulkifli & Ahmad, 2022). The pressure banks face through the trap of loan default triggers the performance of banks in Malaysia (Tan, 2020) and dragged down 10% of the credit losses in the banking impairment (The Edge Market, 2020).…”