Banks could face modification loss of RM4.4b on HP instalments


  • Banking
  • Friday, 08 May 2020

Least affected would likely be Alliance Bank and BIMB

KUALA LUMPUR: Maybank Investment Bank Research estimates the one-off “Day One” provision, or modification loss under MFRS 9, following the banks’ decision not to charge additional interest on hire-purchase (HP) instalments, could be about RM4.4bil.

It said on Friday the decision which is over the six-month loan moratorium period (April to September 2020) is positive to consumers but it comes at a cost to the banks.

Maybank IB Research said banks may have to recognise a one-off Day One provision but this would be just a one-off accounting impact to financials.

“This loss relates to the opportunity cost over time from not having received the additional cashflow. By our estimates, the modification loss for the banking industry as a whole works out to be about RM4.4bil,” it added.

To recap, the Ministry of Finance (MOF) announced that an agreement was reached with the banks to not charge additional interest on HP instalments deferred over the six-month loan moratorium.

HP borrowers (that now have to opt-in if they would like a loan moratorium), but banks will likely have to make a one-off provision for the interest that they cannot collect.

“Banks with a larger HP portfolio will likely see a bigger earnings impact. In a worst-case scenario, we estimate that AMMB, Public Bank and Hong Leong Bank would likely see a larger hit to net profit arising from the additional provisions. Least affected would likely be Alliance Bank and BIMB,” it said.

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