Disposal and Purchase of Impaired Loans/Financing

The disposal of impaired loans/financing by banking institutions is allowed to enable banking institutions to effectively manage their balance sheet, which includes allowing the disposal of impaired loans/financing to specialised entities to leverage on their recovery expertise.

This Policy Document aims to enhance the requirements pertaining to the disposal and purchase of impaired loans/financing to ensure the process involved is conducted efficiently without compromising the rights and interests of the affected borrowers.

Pursuant to section 100 of the Financial Services Act 2013 (FSA) and section 112 of the Islamic Financial Services Act 2013 (IFSA)1, parties intending to enter into any agreement or arrangement to transfer the whole or any part of the business of a licensed person including a disposal or purchase of impaired loans/financing by a banking institution to another banking institution or impaired loan/financing buyer are required to obtain Bank Negara Malaysia (the Bank)’s approval prior to effecting such agreement or arrangement. In the event the proposed disposal or purchase of impaired loans/financing constitutes a transfer of the whole or a material2 part of the banking institution’s business, the Bank will seek the Minister’s concurrence pursuant to section 100(4) of the FSA and section 112(4) of the IFSA3.

This Policy Document sets out the requirements prior to and post the disposal and purchase of impaired loans/financing.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking