Published January 29, 2009

Malaysian banks seek legal help on loans

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(PETALING JAYA) More banks are expected to institute recovery and liquidation proceedings in anticipation of higher bad loans this year and next year due to the global economic crisis, according to a report in The Star newspaper yesterday.

'Even restructured loans have gone into default again with the slump'

The daily said that the banks are seeking the expertise of lawyers to train their staff in recovery and liquidation procedures.

Apart from this, some are also beefing up their recovery and debt collection departments by increasing the number of staff.

Leong Yeng Kit, managing partner of Leong Yeng Kit and Co, in an email reply said: 'Banks and accounting firms have been asking lawyers who are proficient in recovery and liquidation to train their personnel for the expected increase in these activities.

'We also have knowledge that some banks have beefed up their debt collection departments, and one is reported to have strengthened this department to about 700 personnel!'

Although there was no significant increase in recovery actions as most troubled companies still had cash, he expects greater recovery by year-end or early next year when cash flow and savings are depleted.

Mr Leong, however, declined to disclose which companies were seeking recovery actions due to confidentiality but added that some were in the midst of litigation.

Sean HM Yeow, a partner in legal firm Lee Hishammuddin Allen & Gledhill, said: 'Banks now appear to be more flexible and open to restructuring of loans and will only proceed with legal action if it (the loan) cannot be feasibly restructured.

'We have not seen any marked increase in instructions from banks to pursue legal action for loans recovery, but expect more work of this nature this year,' he said.

Mr Yeow added there had been cases of restructured loans going into default again due to the economic slowdown.

He also said that banks had been reviewing some loans to minimise their exposure, and the debt market also witnessed increasing defaults from last year.

On recovery and debt collection, HSBC Bank Malaysia Bhd deputy chairman and CEO Irene M Dorner said in a statement: 'We review our debt collection (including recovery/re- structuring) capacity requirements for the retail and corporate sectors on an ongoing basis in the light of actual experience to date, but also anticipated developments.

'This is to ensure we are able, at the earliest stage possible, to work with customers who may be facing financial difficulties.'

Analysts said that non-performing loans (NPLs) were expected to rise in view of the slowing economy. Citi Investment Research said that NPLs had been low so far and were likely to rise between two and three percentage points this year.

AmResearch said in a recent note that NPLs were expected to rise in the first quarter of this year despite the preservation of asset quality from the proactive measures taken by banks to restructure loans for borrowers.