Fraziali Ismail: Non-performing loans in East Asia and the Pacific practices and lessons in times of COVID-19 Opening remarks by Mr Fraziali Ismail, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the webinar and the launch of World Bank’s Report on non-performing loans (NPL) in East Asia and the Pacific, 27 October 2021. * * * A very good morning to everyone! It gives me great pleasure to welcome you to this webinar in conjunction with the launch of the World Bank Report on “Non-Performing Loans in East Asia and the Pacific: Practices and Lessons in Times of COVID-19”. This event comes at a time where many of us in the region are still navigating through uncertainties with the pandemic. Recovery in many regional economies including Malaysia has begun to gather pace in recent periods in tandem with the recovery in global economic activity. However, the outlook remains subject to large downside risks as the potential for new variants of COVID-19 remains high. These developments are also happening amid the gradual expiry of policy support extended to households and businesses affected by the pandemic. The unprecedented level of support extended has so far helped to keep loan impairments at bay. But, as these measures are gradually unwound as the economy recovers, we would expect to have much greater visibility on the true asset quality of banks.
That said, it is equally important for policymakers to ensure that mechanisms for swift NPL resolution remain appropriate, not only to prevent an accumulation of legacy NPLs in the banking sector but also to provide borrowers impacted by this pandemic an opportunity to bounce back once the crisis abates. Such a balanced approach helps to preserve the value and productive capacity of borrowers in turn limiting long-term damage to the economy. For Malaysia, work is underway to strengthen legislation which will expand the coverage of businesses that can benefit from court-sanctioned recovery mechanisms. This will help flatten the insolvency curve and avoid more permanent scarring, if NPL cases were to spike. Admittedly, this is an area where there are opportunities to do more and one where all of us can potentially learn from each other. Concluding remarks Let me conclude. Looking ahead, we are cautiously optimistic that the tide may be finally turning in this crisis. However, we certainly can’t conclude that the COVID-19 pandemic is firmly behind us. We humbly admit that the virus has wrong footed us several times. The hallmark of good policymakers is to, as the saying goes, “hope for the best, but prepare for the worst”.