Moratorium won’t hurt banks’ earnings badly


The difference between this latest moratorium and the first one from March to September 2020 is that the new moratorium is on an opt-in basis whereby interested borrowers would have to apply for it – though the approval process is expected to be much simplified – and borrowers may have to sign revised terms to the loan agreement.

PETALING JAYA: The blanket six-month loan moratorium amid phase one of the National Recovery Plan is not expected to significantly dampen banks earnings.

The difference between this latest moratorium and the first one from March to September 2020 is that the new moratorium is on an opt-in basis whereby interested borrowers would have to apply for it – though the approval process is expected to be much simplified – and borrowers may have to sign revised terms to the loan agreement.

Maybank IB Research, which is positive on the banking sector, said the blanket loan moratorium is likely to be negative on banks’ share prices in the near term, given uncertainties over the potential impact to earnings from modification losses, if any.

“The loan moratorium in 2020 resulted in a net modification loss (mod loss), which totalled RM1.35bil for the banks within our coverage. It is unclear if there will be a mod loss this time around, since borrowers may have to sign revised loan agreements.

“In any case, since this moratorium is on an opt-in rather than an opt-out basis, the take-up rate is likely to be less than it was last year, in our opinion, ” it noted.

Nevertheless, in the worst-case scenario, which assumes a mod loss of similar quantum to 2020’s mod loss, the research house said the impact to earnings should remain quite manageable at zero to 6% for most banks.

The least affected bank, in its view, would be Alliance Bank Malaysia Bhd while the most impacted would be RHB Bank Bhd.

Mod loss is an accounting treatment in line with MFRS 9 to factor in the time value of money due to the difference between the present value (PV) of the modified cashflows and the PV of cashflows when the fixed-rate loans and financing were contracted.

AmInvestment Bank, which is maintaining its “overweight” call on the banking sector, said at this juncture for the latest loan moratorium, there remains a lack of clarity if interest would be allowed to be accrued and charged for all types of loans and financing.

If additional interest is allowed to be charged, then mod loss to be reported by banks in the third quarter is expected to be minimal.

“On the flipside, if accrued interest is to be waived for all fixed-rate hire-purchase and personal loans for both conventional and Islamic banking similar to that in 2020, mod loss to be reported by banks in the said quarter would be larger, ” it said.

The Association of Banks in Malaysia (ABM) and Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) said its member banks will be offering a six-month moratorium on the installment of all credit facilities, excluding credit cards.

The associations said this is in line with the Pakej Perlindungan Rakyat dan Pemulihan Ekonomi (Pemulih package) announced on Monday.

ABM and AIBIM said the moratorium, on an opt-in basis, applies to all individuals (including all B40, M40 and T20 borrowers/customers), micro enterprises and small and medium enterprises (SMEs) that have been affected by the Covid-19 pandemic.

For credit card facilities, banks would offer to convert the outstanding balances into a three-year term loan/financing with reduced interest/profit rates to help borrowers better manage their debt.

Under the scheme, borrowers/customers are only required to contact their banks to opt in to benefit from the moratorium and approval would be given automatically to all borrowers/customers in the above categories.

The automatic moratorium is applicable for loans/financing approved before July 1, 2021, and are not in arrears for more than 90 days on the date the request for moratorium is submitted to the bank.

Borrowers and customers who wish to take up this moratorium would need to contact their banks from July 7 onwards.

As announced by Bank Negara, borrowers and customers’ Central Credit Reference Information System (CCRIS) records would remain unaffected by opting in for this moratorium, the associations said.

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