The body representing 27 banks in the country said it objected to a claim reported in FMT that banks had been giving out loans for the development of commercial properties without due diligence.
“Thorough credit analysis is performed before any financing for commercial properties is granted,” it said in a statement.
It said this included project feasibility studies by independent parties or in-house commercial property experts, marketability and competitors’ analysis, assessment of economic and market developments, as well as repayment capability.
It said the measures were meant to ensure viability of a project. “Any projections are assessed for reasonableness and sensitivity analysis will be carried out,” it added.
It also said banks were only one part of the ecosystem responsible for the creation of the properties and not the only parties that provided their financing.
“Banks are also certainly not the part that is responsible for the creation of the entire supply of and demand for such properties,” it said.
“All stakeholders should work collaboratively to address this issue more effectively for the betterment of the nation.”
ABM also said banks would generally not finance shopping malls unless they form part of the integrated wider financing requirement, such as a township development or high-rise residential development.
“Thus, banks’ appetite for financing of such projects is relatively low and the direct risks to banks from exposures to the office space and shopping complex segments remain small.”
It said in cases where borrowers engage independent valuers or consultants to prepare a feasibility study for a loan application, the report would still be subjected to the bank’s own assessment and risk appetite.
The developer’s financial standing, track record and multiple sources of funds for repayment, would also be considered in the assessment of the application, it added.
“Banks take into account the current and medium term commercial property market situation such as supply within the vicinity (both existing and incoming), demand, general economic trends, rental and occupancy rates.
“For purposes of evaluating applications for the financing of shopping malls, banks would additionally consider the population size and growth, purchasing power and potential growth in retail spending within the surrounding areas, as well as the outlook of the tourism industry, but to name a few,” it said.
On Sept 5, property expert Ernest Cheong was reported by FMT as saying that banks had been giving out loans for the development of commercial properties without due diligence for the past four of five years.
He said property consultants had already noted that there was a glut of commercial space as far back as 2012.
“It’s one thing for a developer to show they can pay back the loan based on projections of sold or rented out units, but how accurate are these projections? Is there really a demand? Obviously there isn’t enough,” he said.
Cheong was commenting on a Malaysian Reserve report which noted that banks’ stringent lending policy would see a delay of new commercial developments.