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European Real Estate Society (ERES) Conference 2009 24 – 27 June 09, Stockholm
J P P H
Asian Financial Crisis:Examining the Role of the National Asset
Management Company in Addressing Non Performing Loans in The Property Sector
By Rahah Ismail, PhD.
Valuation and Property Services DepartmentMinistry of Finance Malaysia
• To assess the effectiveness of Danaharta, the national asset management company in handling the non-performing loans in the property sector
• To understand the economics of NPLs resolution by Danaharta– NPLs pricing– Loan restructuring
OBJECTIVES
• Malaysia was classified as one of the high performing East Asian economies (HPEA) by World Bank.
• Highly dependent on the banking sector for financing most of its economic activities compared to developed countries.
• Other avenues like issuance of bonds and other financial derivatives are neglected
• The economy is highly dependent on the property sector.
BACKGROUND
PROPERTY FINANCE
16.115
31.4
33.2
8.38.2 9.8
8.6
7.49.3
12.5
12.7
0
5
10
15
20
25
30
35
Manufacturing Broad PropertySector
CommerceSector
Finance Shares ConsumptionCredit
Direction of Lending by Commercial Banks in 1997
Dec-96
Dec-97
• In 1997 the East Asian economies were plagued by the Financial Crisis.
• Panic situation – reversals of capital inflow– deflationary impact of the property prices– crippling effect on the property market
• Non performing loans – over exposure to the property sector– erosion of collateral value
THE ASIAN FINANCIAL CRISIS
Volume and Value of Transaction,1996-2003
050,000
100,000150,000200,000250,000300,000
1996 1997 1998 1999 2000 2001 2002 2003
year
Vol
ume
of
Tran
sans
actio
ns
0.0010.0020.0030.0040.0050.0060.00
Value of Transactions
Series2
Series1
PROPERTY MARKET
NON- PERFORMING LOANS IN THE PROPERTY SECTOR
• Establishment– 20 June 1998 – 31 December 2005– Ministry of Finance Malaysia (Incorporated)– Capital
• RM 3 billion from the Government• RM 11.14 billion issuance of government bonds
– Special powers through Danaharta Act,1998• Objectives
– to relieve the pressure of NPLs from financial institutions
– To maximise recovery value of the NPLs in the portfolio
DANAHARTA – THE NATIONAL ASSET MANAGEMENT COMPANY
• Model– Asset management company
• Large portion of NPLs are structural• Requires resolution of underlying assets
• NPL Portfolio– Acquired : RM 19.71 billion– Managed : RM 27.97 billion
DANAHARTA – THE NATIONAL ASSET MANAGEMENT COMPANY
• Approach– “ Willing seller and willing buyer basis”
• Acquisition Price– Secured loans
• Property backed NPLs – 95% of the market value• Quoted shares -Dependent on the size of
shareholding in the company
– Unsecured loans• 10% of the principal amount outstanding
ACQUISITION
NPL Portfolio
NP L P OR T F OL IO - B y P urpos e of L oan
0.1
0.8
0.8
0.8
1.0
4.0
4.3
13.1
13.3
15.0
16.9
29.9
0 5 10 15 20 25 30 35
P urchase of transport vehicles
C onsumption credit
E lectricity, gas and water
Agriculture, hunting, forestry and fishing
Mining
Wholesale, retail, restraunts and hotels
Transport, s torage and communications
Manufacturing
Others
F inancing, insurance and bus iness services
P urchase of shares
B road property sectors
percent
NPL - PROPERTY PORTFOLIO
(47)
(64)
(57)
(63)
(159)
(188)
(272)
(270)
(416)
10 15 20 25 30
NPL - PROPERTY PORTFOLIO
(RM0.5 B)
(RM0.65 B)
(RM0.65 B)
(RM1.0 B)
(RM1.4 B)
(RM1.5 B)
(RM2.2 B)
(RM2.6 B)
(RM6.5 B)
15 20 25 35 4030
NPLs
VIABLE LOANS NON VIABLE LOANS FOREIGN LOAN ASSETS
LOAN RESTRUCTURING
InformalReschedulingRedemptionSettlement
FormalS.176SA
Recovery Management of Securities
VALUE ENHANCEMEN
T
Management of Assets
•Property•Business
VALUE ENHANCEMENT
Recovery
SALE TO MARKET
Loan Management
AssetManagement
Yes NoYes No
RECOVERY STRATEGY
• Recovery– Total recovery collected RM30.35 billion– Overall recovery rate RM 58%
• Residual Recovery Assets– RM 3.66 billion– Remaining residual recovery assets handed
to Prokhas Sdn. Bhd. to manage
RECOVERY
• How effective was Danaharta in handling the NPL in the property sector?
• Indicators:– Credit Growth– Restoration of Business Confidence– Restoration of Consumers’ Confidence– Property market recovery
RESEARCH METHODOLGY
FINDINGS - CREDIT GROWTH
Credit Growth (Percentage)
-5
0
5
10
15
20
25
30
1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Pe
rce
nta
ge
Credit Growth
FINDINGS - BUSINESS CONFIDENCE
Occupancy Rates For Purposel Built Offices in Selected Urban Centres In Klang Valley, 1997-2004
0
20
40
60
80
100
120
1997 1998 1999 2000 2001 2002 2003 2004
Year
Occ
upan
cy R
ates
(%)
Petaling Jaya
Shah Alam
Subang Jaya / USJ
FINDINGS - CONSUMERS CONFIDENCE
RESIDENTIAL: VOLUME AND VALUE OF TRANSACTION, 1990-2004
122,881
170,016
175,682
156,913
128,081
114,039111,837
103,161
119,767
157,082
170,932
162,269 164,723
176,208
195,243
13,949
7,397
8,6239,531 10,057
11,769
15,810
18,750
21,610
18,539
29,296
21,939 22,19921,137
23,011
-
50,000
100,000
150,000
200,000
250,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Year
Vo
lum
e (U
nit
)
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Val
ue
(RM
Mill
ion
)
Volume Of Transaction (unit)
Value Of Transaction (RM juta)
Price and Rental Movements For SIngle Storey Houses in Subang Jaya, 1997-2004
0.0
50.0
100.0
150.0
200.0
250.0
1997 1998 1999 2000 2001 2002 2003 2004
Year
Pri
ce (
RM
'000
/ p
er u
nit
)
-
200
400
600
800
1,000
1,200
Ren
t (
RM
) p
er
mo
nth
/ p
er u
nit
Price
Rent
FINDINGS - CONSUMERS CONFIDENCE
CORRELATION ANALYSIS
Carved out NPLs By Danaharta and Credit Growth
Carved Out Loan Period 1998-2003 0.86
Credit Growth Period 1999-2004
Credit Growth and Business Confidence
Credit Growth 1998-2003 0.73
Occupancy Rates of Purpose Built Occupancy
1999-2004
Credit Growth and Consumers Confidence
Credit Growth 1998-2003 0.55
Volume of Residential Taransaction
1999-2004
Credit Growth 1998-2003 1.0
Value of Residential Transaction 1999-2004
Credit Growth 1998-2003 0.88
House Price 1999-2004
• Contribution of Danaharta– Credit Growth– Restoration of public confidence– Reducing liquidation of corporations by
rehabilitating viable loans– Preventing panic situation and further falling
of property prices
• Danaharta was instrumental in the return of the economic stability and growth.
CONCLUSION
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