Omg!Your accounting fail. U r really 'lek enm cik'

pls google what is asset and  what is bank toxic assets.

tikaram gor, i give u a hint, if i try to use my form 5 physic knowledge to blow with my mechanical engineer fren, i think they will laugh at me....most likely, they wont waste time to explain to me if i am so ego on my limited knowlegde...g9

in fact, what cherroy said earlier is a little bit advance thats why not everyone got him. but u use basic knowledge to tell ppl cherroy is wrong...i only can shake my head. 

Haiyya....please understand the context of the sentence la. It means that accountants make lousy businessman and investors.

yes, please share...like the one who share earlier, immediately someone can point out where is the key point. Bank make provision on receivables does it mean that bank need to practice margin call and investor need to top up with cash? the more u said, more ppl will know u are not auditor, a troll got no credibility.

anyway, i just do sharing, not intend to win in every debating...forumer can search the facts and decide what knowledge they wan to absorb 

and please follow malaysia standard since we are talking about prop in malaysia and banking system in malaysia.

The theory is correct that when u have liability and the other party should have an asset (receivable).

However, in terms of measuring the impairment required for this asset (amount owing from customer to bank), the collateral amount should not be the first benchmark to write down the asset. (Fyi, financial assets like this should no longer have provision, the new term is impairment).

Technically the asset represents the amount owing from customer to bank and not the property value which is used as collateral. If in case an impairment is required, the realisable value (amount that the bank can recover) is the benchmark. This means if the customer has no problem paying back the loan, the asset need not be provided for because the bank can recover all the receivables. If the customer can't pay back and it becomes a NPL,  the bank will need to write down to the amount it can recover which should be the property value as the bank has the rights to auction it off or sell it to another party etc.

Therefore, it is incorrect to say when property price drop, the receivables need to be impaired/provided for. You can refer to mfrs139 for this.
As my explanation above, the fair value of the asset represents the cash inflow that will be paid by the customer of the bank to repay his loan and not the property value. Only in circumstances when the customer cannot repay, whatever amount that the bank can recover becomes the new receivables balance.
Refer to above as I try to explain the basis of impairment/fair value for receivable assets to tikaram above.

Hikari explain the basis of provide provision on property loan. The basis of provide receivable provision is when borrower default the loan repayment, not when the prop value drop.

you totally dunno where ppl coming from and the initial objective of the discussion.

the highligthed part, if ur principle is right, u wont ask this question anymore.

suggest u go back few page and read.

OK. In this case, it has nothing to do with prop price drop or a customer defaulting, as the bank no longer has the interest to continue with the loan arrangement, hence the bank is just trying to sell off its "asset". This is different than what I understand the question/argument was about initially (I.e. property price drop affects banks balance sheet).

Given this scenario, the realisable value will still apply but it is now represented by the amount that bank B has agreed to pay as that's the amount that bank A will receive (asset) Therefore, the "asset" new value will be the agreed amount between bank A and B (or the supposed market value if an agreed price has yet to be determined). Fair value is a word that's represented by different things based on different scenario. For a loan asset like this, the fair value for the asset is the realisable value i.e. whatever that Bank A can receive under the current arrangement (be it continue as loan or an asset to be sold to bank B).

I'm not sure what kind of report you are trying to look for or what you really wanted to find out LOL when u say bank need to apply fair value rules. Maybe its in Mfrs139 that defined financial assets under category of loan and receivables need to be accounted for under fair value at initial recognition n subsequently carried at amortised costs and then impairment need to be made if the circumstances arises.  I guess this might be too technical in accounting wise and might not be appropriate for this topic thread.

How things are accounted for in a banks balance sheet has nothing to do with a property investor. Technically speaking property price drop is an investor problem and not a bank's problem as long as the investor has ability to continue to repay his loan. Of course that's just theory, we all know how it's a vicious cycle and one affects another. Probably that's another discussion altogether LOL hope these helps =)

thanks Hikari, dunno since when we fly to interbank transaction already...

Underwater property is not a benchmark against your loan asset value. Bank cares about customer repaying their debt. The fair value of the loan asset is the money that the bank that they can receive. The property itself is just a collateral. Until such time when the collateral needs to be taken over by the bank (npl,  defaults etc), the collateral does not matter and the bank will not make provision. This is not right accounting wise nor as a business decision (unless they want to manipulate n lower their profits).

Using the underwater property loan concept that you applied, if the bank loans out money for a car loan, it will be similarly recorded as a loan asset. Since 2nd hand car price drop faster than customer repayment amount, does that mean that banks will have to make provision for all these hire purchase loan as now the value of the car is lower than the loan asset balance? I guess the answer is No. Pls let me know if u think it's otherwise.
It's OK. I can explain again.

What is the market value?

Bank is in the business of lending money n getting repayments while earning interests. The market value of the loan assets if anybody were to value it is the cash flow that it entails (i.e. repayment made by customers). In this instance, no provision is required.

Even when another bank (bank b) wants to take over the loan assets, how much will bank b pay bank A? They don't benchmark it against the property value, they benchmark against the cash flows from customer. They will probably price in some discounts due to risks etc (if there's limited or no risk or special case) that's all. They will not use the property price as a benchmark. It's because they are buying over the rights to receive the cash flow. They r not buying over the rights to own the property.

U kept talking about fair value n market value which is right, but the property price is not the fair value and market value. Fair value and market value is cash flows. If it's not npl, cash flows=repayment from customer.

Principal is that u tried to apply the lower value of the collateral to justify for a provision for loan asset for housing. Similar principal should apply to car loan. Whether it's within a month or 12 months it doesn't matter.

And actually although car value don't drop 30% in a month, plus note that if u were to buy a car and drive for a month, it will immediately lose value more than your loan repayment. For example if you were to buy a myvi with 50k loan (100% loan) for a month and then make rm1k repayment, your loan outstanding balance is still 49k. Don't tell me the myvi can still sell for 49k in the market. No right? Even when u drive for a day and the car is registered, it will immediately lose value. It loses value even faster than house and it's certain that it will lose value overtime.

Y should it be any different than housing loan if your principal apply leh? =)

I think what tikaram is saying is what's going on behind the banking scene.
BETWEEN 2 BANKS.
Bank A sell their receivables (asset) to Bank B => need to practise fair value accounting in Bank B balance sheet.
When this happens it affects the borrowers (ppl like us) on margin call. Correct?
Does this happen here in Msia?

I am an accountant and was an auditor.

You are again saying that bank A should provide based on what bank B is willing to pay. If bank A customers are paying on time and no npl based your scenario,  why do I want to sell to bank B at 5% discount when I can just continue to hold it and wait for my customers to pay me and give me a steady stream of income as per my normal course of business.

So what if bank c only willing to buy your loan assets with 10% discount? Bank d with 20% discount. Which value do u use then?

When u r the accountant for bank A how r u going to determine how much provision to make? Call up your competitor n provide all contracts for them to give u a quote so that they can help you prepare your balance sheet? No ma.. right?

I think key point is that provision is made when customers default (npl or bad payment record etc). It is not automatically made just because the bubble burst.

Fyi, prudent concept doesn't apply anymore as it seems you keep going on a worse case scenario (npl happens, I have to seel off my loans etc) even when customers r not defaulting.

The initial discussion was on a single bank needed to write down its receivables in its balance sheet bcos property price drop significantly. It was not between 2 banks. Don't know how we kept going there.. lol... but anyway, like I explained earlier bank B will value it based on cash flow receive from the customer, not property price.

When this happens, it doesn't affect the borrowers as bank A will just novate the contract to bank B. The terms and conditions should stay the same. Just because bank A sell the loan to bank B, it doesn't cancel the contract. How will it affect the borrowers leh? If it happens, then you should be very worried. Bcos anytime now, your bank will call u to pay back everything bcos they sold your loan asset to bank B. All flippers should be very worried LOL

Maybe tikaram can explain again the purpose of this discussion before we kept talking about different things. Is it about

1) how will Bank A treat it's loan assets when property price drop and how it will affect borrower?

Or

2) how will Bank A treat it's loan assets should it decide to sell it to Bank B and how it will then affect the borrower?

I thought it's no.1 but do let me know if we r not talking about that.
Myvi was an example. Just like why u use 30% in your example. If I wrote Myvi drop 10% makes more sense? The loan amount is still higher than the 2nd hand value. What then?

Well, Im afraid it's not just me and that none of us here get your point or understand what you are trying to explain.

Obviously during property booming your bank selling price and during property bubble is different. So many factors comes into picture.  Interest rate risk, growing household debt leading to higher risk of npl, lesser room for growth for the bank etc will price your bank differently.

We were talking about property price drop affecting loan receivables. And now it becomes selling off banks. I guess we r drifting further away from the initial discussion. But nonetheless, I would really want to know how any of these affect the borrowers/property investors as ultimately that's what all of us are interested in. Not how a bank accounts for things n write off things.  Probably should do it in the other section on stocks to value public bank, maybank or cimb shares value. LOL

Well try to answer me if u sell of bank during bad time wat is the value?

Why it is lower?. Bcs forsee  your balance sheet is lower.

You dont see this so simple?