WHILE banking stocks have so far acted negatively to the Finance Ministry’s (MoF) instruction to get banks working on exempting interest payments for moratorium borrowers, observers say it is too early to predict the exact impact on banks.
“We await the announced outcome and allow banks to distil the impact and/or provide some pushback,” CLSA banking analyst Peter Kong tells clients in a report.
Hong Leong Investment Bank (HLIB) analyst Chan Jit Hoong says he is making no change to his earnings forecasts for banks at the moment “till we gather more updates from banks.”
It is understood that the banks themselves are awaiting more instructions from Bank Negara on the matter.
On Tuesday, the MoF said in a statement that it had instructed banking institutions to quickly work on exemption of interest rate payments for recipients under the country’s moratorium programme.
This will involve borrowers from the bottom 50% of all Malaysians as measured by income, for the October to December 2021 period.
The moratorium – a temporary halt of loan payments by bank borrowers – is in place as a result of the Covid-19 pandemic which has caused many, especially from the lower-income groups, to not be able to service their regular loans because of factors like job losses and closure of businesses.
While borrowers do not have to make payments on their loans under a moratorium period, the downside of it is that interest tends to accrue as a result of taking up the moratorium, and the borrower will have to bear this interest.
“While we do not downplay the plight of those suffering, we believe interest waivers need to be selective, and see banks pushing back if this were not the case,” says CLSA’s Kong.
“Details are scant, but modification losses may arise in this current form and we cannot rule out a potential knee-jerk reaction,” he adds.
Banks have declined to comment on the matter at the moment.
However, some have chosen to highlight the measures that they have been implementing in the current times.
CIMB Group Holdings Bhd CEO Datuk Abdul Rahman Ahmad (pic) says the bank remains cautious in the second half of 2021, as it anticipates the global Covid-19 resurgence to bring about challenges such as stagnant loan growth, low interest rates, margin compression and modification losses.
“We will continue to focus on helping our customers navigate the economic challenges caused by the pandemic,” he tells StarBizWeek.
According to him, CIMB has offered various payment assistance programmes in three phases from 2020, and to date, it has helped around 480,000 customers through its opt-in programmes and about 1.2 million customers via the blanket moratorium offered in March 2020.
“We recognise that providing repayment assistance in a fast-tracked and convenient manner is key.
“We invested heavily on digitising this area in order to provide assistance in a seamless and digital manner.
“And whilst I am aware there are still shortcomings and criticisms on banks, given the constraints of our working environment due to the mobility restrictions, I am pleased to say that CIMB took the lead in providing repayment assistance with our straight through digital processing platform, with a virtual 100% approval rate.”
Abdul Rahman says beyond the repayment assistance, CIMB continues to provide support to communities in need and also to the national healthcare system.
“In Malaysia, we recently announced our RM10mil aid commitment under our Komuniti Kita Covid-19 Relief project towards upgrading hospitals and medical facilities and food aid programmes in partnership with several NGOs,” he adds.
CIMB is expecting provision for doubtful debts to remain elevated amid the ongoing pandemic.
AMMB Holdings Bhd (AmBank) group CEO Datuk Sulaiman Mohd Tahir is expecting the same, taking a prudent stand on provisions.
“We have taken an additional RM87mil of overlay in the first quarter of financial year ending March 31, 2022 (FY22), which is necessary at this juncture, with total overlay carried forward standing at RM833mil now,” he tells StarBizWeek.
“Nevertheless, we are actually experiencing a reduction in impaired loans, (FY21 1.54%; FY20 1.73%) which again is a function of how we have managed the moratorium for our clientele.
“Frankly, if not for the current moratorium, we would have seen a lot more non-performing loans.
“The current structure also provides for those who are servicing their loans currently with the freedom and prospect of not backloading their loan payments,” says Sulaiman.
He declined to comment on the recent instruction by the MoF.
Meanwhile, in his report, HLIB’s Chan notes that MoF’s instruction to exempt three months of interest payments for the B50 segment under the loan moratorium is a negative development but unlikely to have material impact on banks.
“However, forecasts are unchanged till we gather more updates from banks. In any case, we have rolled our valuations to FY22 and this is a one-off event. We reckon price weakness is an opportunity to accumulate.”
According to Chan, the banking sector’s risk-reward profile continues to “skew to the upside” as Covid-19 woes will likely fizzle out in 2022 while the state of the economy and banking sector will “only get better” in time.
“Furthermore, valuations are undemanding and there is ample liquidity in the market.”