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European Real Estate Society (ERES) Conference 2009 24 – 27 June 09, Stockholm

European Real Estate Society (ERES) Conference 2009 24 – 27 June 09, Stockholm. 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 Department

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European Real Estate Society (ERES) Conference 2009 24 – 27 June 09, Stockholm

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  1. European Real Estate Society (ERES) Conference 2009 24 – 27 June 09, Stockholm 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 Department Ministry of Finance Malaysia rahah@jpph.gov.my rahah_ismail@yahoo.co.uk

  2. OBJECTIVES • 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

  3. BACKGROUND • 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.

  4. PROPERTY FINANCE

  5. THE ASIAN FINANCIAL CRISIS • 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

  6. PROPERTY MARKET

  7. NON- PERFORMING LOANS IN THE PROPERTY SECTOR

  8. DANAHARTA – THE NATIONAL ASSET MANAGEMENT COMPANY • 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

  9. 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

  10. ACQUISITION • 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

  11. NPL Portfolio percent

  12. NPL - PROPERTY PORTFOLIO (416) (270) (272) (188) (159) (63) (57) (64) (47) 10 15 20 25 30

  13. NPL - PROPERTY PORTFOLIO (RM6.5 B) (RM2.6 B) (RM2.2 B) (RM1.5 B) (RM1.4 B) (RM1.0 B) (RM0.65 B) (RM0.65 B) (RM0.5 B) 15 20 25 30 35 40

  14. RECOVERY STRATEGY LOAN RESTRUCTURING ASSETS RESTRUCTURING Sale of Loan Via BID PROCESS • Sale of collateral • Foreclosure • R&M • Liquidation • Sale of business • SA • via BID PROCESS NPLs VIABLE LOANS NON VIABLE LOANS FOREIGN LOAN ASSETS LOAN RESTRUCTURING • Informal • Rescheduling • Redemption • Settlement • Formal • S.176 • SA Yes No Yes No Recovery Recovery Management of Securities VALUE ENHANCEMENT • Management of Assets • Property • Business • VALUE ENHANCEMENT Loan Management Asset Management SALE TO MARKET

  15. RECOVERY • 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

  16. RESEARCH METHODOLGY • 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

  17. FINDINGS - CREDIT GROWTH

  18. FINDINGS - BUSINESS CONFIDENCE

  19. FINDINGS - CONSUMERS CONFIDENCE

  20. FINDINGS - CONSUMERS CONFIDENCE

  21. CORRELATION ANALYSIS

  22. CONCLUSION • 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.

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