Malaysia Financial Law - Danaharta Act

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FINANCIAL LAW - Danaharta Act

Related Topics : Banking Law . Offshore Banking Law . Broker Disputes . Commodities Law . Investment Terms . Raising Capital . Securities Law . Buying On Hire Purchase . Exchange Control Rules . Danaharta Act

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Frequently Asked Questions About Danaharta

How will the financial institutions benefit from selling their non-performing loans(NPLs) to Danaharta as opposed to keeping them?

First, the financial institutions will be able to sell their NPLs at a fair value and remove themselves from the need to manage these NPLs which represent a drain on management's resources. This will allow them to reduce their NPL ratio often used as an indication of the quality of their assets.

Secondly, they can participate in a surplus sharing arrangement. Any surplus realized by Danaharta from asset disposition, over and above its cost of acquisition plus directly attributable costs, is shared with the selling bank on an 80 (bank): 20 (Danaharta) basis.

What industry sectors will Danaharta focus on?

Danaharta will not focus on any particular industry sector. However, our portfolio will mirror the industry NPL portfolio which is largely made up of loans in the property and manufacturing sectors and for the purchase of shares. Loans to these sectors are also typically large in size, with opportunities for Danaharta to enhance recovery value through various asset management strategies, for example, corporate restructuring.

Can a borrower sell his loan to Danaharta?

No. Danaharta only deals with the financial institutions. That means Danaharta cannot deal directly with customers of financial institutions. In addition, Danaharta will not be acquiring loans that are less than RM5 million as it would not be cost-efficient for Danaharta to be involved with relatively small amounts. Therefore, most consumer loans for cars and housing, credit card purchases and the like would be excluded.

What happens to the borrower if his banker sells his loan to Danaharta?

Nothing. The borrower continues to owe the same amount and the same terms of the loan continue to apply. However, instead of making payments to his banker, he now makes those payments to Danaharta. Also, as Danaharta is not a bank, it will use Maybank's base lending rate as the reference point for calculating interest.

Does this mean a borrower pays more?

No. What it means is that Danaharta will use Maybank's base lending rate to calculate the interest the borrower has to pay but using the same terms that applied previously. For example, if the borrower's banker had a base lending rate of 8.5% and charged a margin or spread of 1.5%, the borrower would pay interest at 10%. If Danaharta buys the loan, it would calculate interest using Maybank's base lending rate say, 8.3% and the same margin or spread, i.e. 1.5% so that the borrower would pay interest at 9.8%.

Will Danaharta deprive the borrower of his collateral?

No. The borrower remains the owner of his collateral. All Danaharta gets is the same rights and interests as chargee that the selling bank had previously.

What if the value of the borrower's collateral is more than his outstanding loan?

The collateral remains collateral for the loan on the same terms as before. If the loan is not repaid and Danaharta sees the need to realize the collateral, then any excess from the proceeds of realization after paying the loan outstanding will be returned to the borrower.

Does the Danaharta Act allow Danaharta to acquire assets by force?

No. The Danaharta Act only allows Danaharta to acquire an NPL if the selling bank agrees to sell and on terms that are mutually acceptable. The borrower's consent is not required because the selling bank is not selling the borrower's property. Rather, the bank is selling its interest in the NPL together with all rights attached, for example as chargee to a collaterised property.

The borrower remains the owner of the property subject to the same terms and conditions of the charge that the borrower had previously given to the bank.

Will Danaharta disclose the nature and amount paid for the NPLs acquired?

As a commercial entity, it is not viable for Danaharta to reveal the price it pays for the NPL, each and every time. This is to retain our commercial advantage when negotiating future transactions. However, our half-yearly operational reports will provide information on assets acquired and disposed of as well as assets acquired from each bank during the half-year period. In addition, Danaharta will continue to make announcements on major events as and when they occur, for example, the appointment of Special Administrators.

Will Danaharta contribute to the devaluation of assets?

Hardly. First, in selling their NPLs to Danaharta, financial institutions essentially replace non-performing assets with bonds that provide them with income. Secondly, the acquired assets will be restructured to operate efficiently. Neither effect will depress real asset prices.

How does Danaharta work with the CDRC in strengthening the banking system?

Danaharta's main priority is to remove the NPL problems faced by the financial institutions. CDRC, on the other hand, has the objective of restructuring problem loans of borrowers. Through restructuring of these loans, it is hoped that the loans can be avoided from turning into NPLs, or if they are already non-performing, can be restructured so that they become performing again. Both agencies play an important role in tackling the growing NPL problems.

As a rule of thumb, in the event of NPL problems, financial institutions turn to Danaharta whereas borrowers turn to CDRC.

What other asset management companies are there in the world?

There are several types of asset management companies, among which are the Resolution Trust Corporation in the United States, Fondo Bancario de Proteccion al Ahorro (FOBAPROA) in Mexico and Securum in Sweden. Then there are those in Asia, for example, Thailand, Indonesia and Korea that were set up during the current economic crisis.

Will Danaharta take into account government policies and objectives?

Danaharta was established as a direct result of government policies and objectives. It is wholly-owned by the Government and as such, the decision-making process allows for input from the Government.

Since Danaharta only deals with NPLs of RM5 million and above, what recourse do borrowers of smaller loans have in face of difficulties?

There are two funds, administered by Bank Negara Malaysia, that cater specifically to small and medium sized companies:

Fund for Small Medium Scale Industries	Rehabilitation Fund for Small & Medium Industries
To expand production capacity in selected sectors such as manufacturing, agricultural-based and support-services Maximum lending rate of 8.5% Maximum tenure of loan of seven years(until December 2005) Maximum and minimum funding per customer of RM5 million and RM50,000 respectively	To provide financial assistance for viable SMIs which face non-performing loan and cash flow problems Maximum lending rate of 5.0% Maximum tenure of loan of seven years Maximum and minimum funding per customer of RM5 million and RM50,000 respectively

Apart from these two general funds, there are also three other funds - Funds for Food; Special Scheme for Low and Medium Cost Houses; and New Entrepreneurs Fund - that are also administered by Bank Negara Malaysia.

Should borrowers face difficulties in securing loans from banking institutions, he or she can contact:

Loan Complaints and Monitoring Unit

Information compiled and extracts
from Danaharta Nasional Berhad

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