This study aims to investigate how macroeconomic shocks during the COVID-19 pandemic, such as GDP contractions, labour market disruptions and monetary policy changes, affected non-performing property loans (NPPLs) in Malaysia and Singapore, two economies with divergent financial architectures. Given the high value and long-tenure nature of property loans, understanding their default patterns during economic shocks is essential for ensuring financial stability. This study explores how NPPLs evolved during the pandemic by comparing them with pre-pandemic patterns. It also investigates the roles played by inflation, interest rates, unemployment, exchange rates and GDP growth in shaping NPPLs. Ultimately, the goal is to offer evidence that can help policymakers improve financial resilience in the housing and banking sectors.
This study uses the autoregressive distributed lag (ARDL) modelling approach to analyse monthly time-series data from 2010 to 2023, capturing long-run relationship between NPPLs and macroeconomic variables with mixed integration orders (I[0]/I[1]). Stationarity is tested using the augmented Dickey–Fuller (ADF) method, while model robustness and cointegration are confirmed through the F-bounds test, Breusch–Godfrey serial correlation test, heteroscedasticity diagnostics and CUSUM stability plots.
The empirical analysis reveals distinct macro-financial dynamics shaping non-performing property loans (NPPLs) in Malaysia and Singapore. In Malaysia, a counterintuitive procyclical relationship was observed, where economic recovery coincided with rising NPPLs, indicating that growth periods may have encouraged riskier lending behaviour and looser credit standards. Exchange rate volatility also emerged as a significant contributor to NPPLs in Malaysia, suggesting that external financial shocks and foreign-currency exposures played a role in weakening loan performance. In contrast, unemployment was the most influential factor in Singapore, reinforcing the central role of the labour market in shaping mortgage default risk, particularly within housing finance systems linked to employment-based contributions like the CPF. Interest rate movements were found to have a stabilising effect in both countries, with higher rates associated with lower NPPLs; this relationship was more pronounced in Malaysia, highlighting the stronger credit-disciplining role of monetary tightening. Inflation, while statistically insignificant in the long run, remains an important macroeconomic indicator that may interact with other variables affecting financial stability. Overall, the results reflect how distinct institutional frameworks mediate the transmission of macroeconomic conditions into property loan distress, necessitating tailored policy responses.
The findings of this study highlight the importance of designing macroprudential policies that are responsive to country-specific vulnerabilities in the property finance system. In Malaysia, the observed procyclicality of NPPLs during economic recovery suggests that authorities should adopt automatic loan-to-value (LTV) ratio reductions when GDP growth exceeds 5%, thereby tempering excessive credit growth during booms. Additionally, given the significant impact of exchange rate fluctuations, regulatory frameworks should mandate currency hedging for foreign-currency-denominated property loans to reduce exposure to external shocks. In Singapore, where unemployment emerged as the dominant predictor of NPPLs, the study recommends linking CPF-based mortgage deferral schemes to real-time unemployment triggers, such as activating automatic relief measures when the jobless rate exceeds 3%, to enhance borrower protection during labour market downturns. These targeted interventions align with the institutional strengths of each country and are supported by robust ARDL findings. However, the research is not without limitations. The analysis relies on aggregated national-level time series data, which may obscure micro-level borrower heterogeneity and sector-specific loan performance. Additionally, the exclusion of bank-level risk management variables and temporary pandemic relief measures may limit the granularity of the credit risk mechanisms explored. Future research could address these gaps by incorporating borrower-level data sets and evaluating the long-term impact of policy interventions enacted during COVID-19.
The results provide actionable insights for financial regulators and policymakers. In Malaysia, managing credit expansion during economic recovery and enhancing currency risk mitigation strategies is vital. In Singapore, labour market support and prudent interest rate policy remain critical levers to safeguard the property finance system. Both nations can benefit from early warning indicators embedded in macroeconomic surveillance frameworks.
As NPPLs are closely linked to household financial distress and long-term housing affordability, managing macroeconomic risks can help prevent widespread social and economic fallout. Ensuring credit market stability during crises contributes directly to social welfare, especially among vulnerable borrower segments.
This study presents one of the first comparative macroeconomic analyses of non-performing property loans (NPPLs) in Malaysia and Singapore during the COVID-19 pandemic, applying ARDL modelling to monthly time-series data from 2010 to 2023. By focusing exclusively on property loans, an often under-examined yet high-risk segment of banking portfolios, the research provides targeted insights into the credit vulnerabilities of real estate financing across distinct institutional settings: a developing economy (Malaysia) and a highly regulated financial hub (Singapore). The study’s originality lies in its dual-country design, its pandemic-era framing and its emphasis on long-run macro-financial dynamics. It contributes to financial stability literature by testing the financial accelerator hypothesis in emerging vs advanced Asian economies, as well as revealing how institutional design (e.g. Malaysia’s market-led vs Singapore’s state-coordinated systems) mediates macro-NPPL linkages during crises. Despite limitations such as exclusion of borrower-level variables and focus on five core macroeconomic indicators, the study applies robust diagnostics and contributes a structured, empirically grounded foundation for post-crisis financial governance. It enhances the literature on property loan risks, informs policy design tailored to national contexts and offers a springboard for future research involving cross-border exposures, sector-specific dynamics and the evolving role of financial technology in housing credit systems.
