Malaysian banks' loans loss coverage ratio on a persistent decline since 2014

It has declined to 74.4% from 4Q14's peak of 91.1%.

Loans loss coverage ratio has been on a persistent decline from a peak of 91.1% in 4Q14 to 74.4% in 1Q17 as provisions continue to lag gross impaired loans formations, says UOB Kay Hian.

"Overall loans loss provision declined 25% qoq and 16% yoy in 1Q17 despite a 2% qoq and 25% yoy increase in gross impaired loans balance. Banks have always justified the declining LLC trends with the sufficient level of collateral cover inherent."

Here's more from UOB Kay Hian:

However, with the implementation of MFRS9 on 1 Jan 18, such justification can no longer hold as the impact of life time provisioning will inherently raise provisions significantly regardless of collateral cover.

Banks with LLC significantly below 100% would have to ramp up provisions (eg RHBBank, Affin bank, AMMB). These banks’ overall LLC (inclusive of regulatory reserves) are currently hovering at an average of 75% vs overall peer average of 120%.