URUS A POSITIVE MOVE FOR BANKS & BORROWERS, POSES MINIMAL IMPACT -- RESEARCH HOUSE

KUALA LUMPUR, Oct 15  -- Maybank Investment Bank Research has viewed the recently announced Financial Management and Resilience Programme (URUS) for B50 borrowers as a positive move for both affected borrowers and banks.

It said financially impacted borrowers will benefit from greater financial assistance while the financial impact to banks is likely to be smaller than initially estimated, given that it is a targeted assistance programme.

“Under the earlier blanket three-month interest waiver, we had estimated an average 7.0 per cent earnings impact to banks’ earnings from potential modification losses.

“The financial impact to banks under URUS is likely smaller, we think, but we await further clarification on the programme,” it said in a note.

Maybank IB, however, maintains a “positive” call on the banking sector, with a “buy” call on AMMB, BIMB, RHB, Public Bank and HLFG.

URUS is formulated by the banking industry together with Bank Negara Malaysia and the Credit Counselling and Debt Management Agency (AKPK).

Eligible borrowers will be entitled to interest rate exemption on their loans for up to three months, and a reduction in instalment payment for up to 24 months which will include a reduction in interest rates.

CGS-CIMB: Banks’ Net Profit to See Negative Impact  

Meanwhile, CGS-CIMB expects banks’ net profit to be see a negative impact of 1.6 per cent from the interest exemption versus -4.1 per cent previously as it reduces its assumption on the proportion of loans to the B50 borrowers eligible for the three-month interest exemption from 50 per cent to 20 per cent.

“This is because to qualify for the scheme, borrowers will have to prove that they are jobless or suffer at least 50 per cent loss in income, applicants of the scheme will be monitored by AKPK to ensure that they are indeed in financial distress, and the reopening of the economy would help reduce the stress on the income of B50 borrowers,” it said.

However, it said the proposal for smaller instalment amounts for up to 24 months and lower interest rate were negative surprises as these could signal that banks would have to incur additional losses in calendar year 2022-2023 forecast (CY22-23F) from the financial assistance extended to borrowers.

“We believe the purpose for the move is to eliminate the compounded interest on the instalments during the three-month period when the B50 borrowers enjoy the interest exemption. 

“We are encouraged that banks are more stringent in providing the interest exemption to their B50 borrowers which could spell lower downside risks to our net profit forecasts for CY21-22F.

“As such, our expectation of an earnings recovery in CY21-22F, with net profit growth of 15.8 per cent in CY21F and 8.2 per cent in FY22F, is intact; this continues to underpin our ‘overweight’ call on banks. Our picks for the sector are Public Bank, Maybank and Hong Leong Bank.”

PIVB: Rate to Normalise in 2022

On the other hand, Public Bank Investment Bank (PIVB) expects the interest rate to normalise in 2022 and anticipates economic recoveries to bring about asset quality improvements and loans growth and all of these medium- to longer-term boons to the sector.

“We do not see conditions getting significantly worse than 2020 levels. While we maintain our ‘neutral’ view on the sector, it continues to be with a positive bias, given its lagging valuations relative to the broader market”.

As of now, PIVB does not likely see banks refraining from funding any particular segment of borrowers due to the notion of higher risk profiles so as long as they remain creditworthy and it has, however, seen cautionary statements from one particular ratings agency.

S&P Global Ratings, in late September, noted that the downside systemic risks for Malaysian banks were on the rise.

Affirming long-term and short-term issuer credit ratings, it, however, said the outlook on all the five Malaysian banks was negative, citing the economic risk trend for Malaysia had turned negative and that Malaysian banks were also facing rising risk in the competitive environment due to negative government intervention.

Short-term volatilities notwithstanding, current assistance programmes are notably one-off in nature.

Any modification losses incurred will eventually be unwound over the years. Liquidity in the system is still ample, with the banks well capitalised.

“For sector exposure, we like Alliance Bank and Maybank,” PIVB said.

-- BERNAMA