Recently, Bank Negara Malaysia (BNM) issued a policy document on the Disposal And Purchase of Impaired Loans/ Financing (Policy Document) which came into effect on the date of its issuance i.e. 25 June 2024.
This Policy Document aims to improve the requirements for the disposal and purchase of impaired loans/financing, ensuring the process is conducted efficiently while protecting the rights and interests of the affected borrowers. The disposal of impaired loans/financing by banking institutions is permitted to help banking institutions to manage their balance sheets more effectively, including transferring such loans to specialised entities with recovery expertise.
The Policy Document sets out the requirements prior to and post the disposal and purchase of impaired loans/financing and applies to the following institutions:
(a) a licensed bank
(b) a licensed investment bank
(c) a licensed Islamic bank (excluding licensed international Islamic bank)
(d) non-bank buyers.
Eligibility Criteria
Some of the eligibility criteria listed in the Policy Document are as follows:
A. Loans / Financing Eligibility
Prior to submitting the joint application, the seller must ensure that:
(a) whichever of the following criteria, which occurs earlier:
i. the impaired loans/financing have either remained classified as impaired for at least 12 months from the initial date of impairment; or
ii. all reasonable recovery efforts have been exhausted, such as verifying up-to-date borrower contact details and confirming receipt of any notices or reminders; and
(b) the impaired loans/financing must not be related to projects of strategic importance.
(Note: This includes loans/financing granted for or related to national infrastructure projects (such as, in the area of transportation, telecommunications, energy, logistics and utilities), as well as those identified by the Government as strategic through its various developmental plans (such as projects involving circular economy, integrated water resource management and digital connectivity under the 12th Malaysia Plan 2021-2025).
B. Buyer of impaired loans/financing eligibility
Where a seller intends to sell its impaired loans/financing, the seller shall only sell such impaired loans/financing to the following parties:
(a) domestic banking institutions or locally incorporated foreign banking institutions in Malaysia; or
(b) non-banking institutions that are locally incorporated in Malaysia and are a resident for tax purposes,
subject to the seller obtaining the relevant prior written approval under Section 100(6) of the Financial Services Act 2013 (FSA) or Section 112(6) of the Islamic Financial Services Act 2013 (IFSA).
For the purposes of submitting the application, the buyer must ensure the following criteria are satisfied:
(a) the buyer has a proven track record in debt management and recovery with minimal complaints regarding its practices.
(b) the buyer employs satisfactory recovery methods, including maintaining a dedicated unit with qualified personnel to manage debt collection and borrower complaints.
(c) the buyer has sufficient and competent staff with recognised qualifications from reputable institutions or adequate knowledge and training, including, where relevant, in Islamic banking, finance or Shariah law.
(d) where the buyer intends to outsource the collection or recovery of impaired loans/financing to a service provider, the buyer must ensure that the service provider meets the criteria specified in paragraphs (a) to (c) above.
Business Conduct Requirements
A. Seller of impaired loans/financing
In accordance with Section 123 of the FSA and Section 135 of the IFSA, the seller must notify affected borrowers in writing of its intention to dispose of impaired loans/financing to a buyer at least 90 days before entering into any agreement or arrangement for such disposal. Additionally, the seller must provide a period of 90 days from the date of the notice given for affected borrowers to regularise or settle their outstanding loans/financing before proceeding with any arrangement to dispose of the impaired loans/financing to the buyer.
Upon completing the disposal of impaired loans/financing, where the buyer acquires the rights and titles to such loans/financing, the seller must notify affected borrowers in writing within 7 days, specifying:
(a) the completion of the disposal, including the buyer’s name and contact information; and
(b) that all complaints or matters related to the impaired loans/financing prior to the completion shall be directed to the seller.
When impaired loans/financing are sold to a non-bank buyer without access to the Central Credit Reference and Information System (CCRIS), and the seller receives a written request from the non-bank buyer or a written notification from the borrower that the borrower has fully settled the impaired loans/financing with the non-bank buyer:
(a) the seller must update the borrower's status to ‘Settled’ in the CCRIS within 7 working days from receiving the request or notification; and
(b) the seller must inform the borrower within 7 days after updating the status in the CCRIS that their status has been duly updated.
B. Buyer of impaired loans/financing
Within seven 7 days of completing the purchase of impaired loans/financing, the buyer must notify affected borrowers in writing that:
(a) any complaints or queries about the purchase, management, or recovery procedures should be directed to the buyer, except for issues arising before the purchase completion date; and
(b) if borrowers are dissatisfied with the buyer's response, alternative redress options are available through BNMLINK and Ombudsman for Financial Services.
Upon completion of the purchase of impaired loans/financing, where the buyer assumes the rights and titles to such loans, the buyer must comply with the debt repayment plan and terms set by Agensi Kaunseling Dan Pengurusan Kredit (AKPK) for loans under AKPK’s Debt Management Programme (DMP).
For loans not under DMP, the financially distressed borrowers are allowed to seek AKPK’s assistance and borrowers with multiple creditors are allowed to negotiate a debt repayment plan with AKPK. Borrowers must comply with DMP and its terms and conditions in situations where the buyer and the borrowers have agreed to reschedule or restructure the impaired loans/financing.
Other Requirements
The seller must recognise any losses incurred upon completing the disposal of impaired loans/financing to a buyer. If both the seller and buyer are banking institutions within the same group, they must ensure that the impaired loans/financing are consolidated at the group level for accounting purposes.
The Policy Document includes additional requirements for non-bank buyers, Appendix I: Template for Application for Disposal and Purchase of Impaired Loans/Financing, and Appendix II: General Profile of Impaired Loans/Financing for Outright Sale. The full document can be accessed on the BNM website at https://www.bnm.gov.my/-/pd-dpil-en
20 September 2024