BANK Negara Malaysia (BNM) may believe that the economy is set for a recovery in the second half of the year but headwinds are still at large for banks, said Affin Hwang Capital.
The central bank, in its July 23 analysts’ briefing, appeared to be optimistic of an economic rebound with the banking sector continuing to be supported by ample liquidity, strong capital buffers and robust debt-service-ratios of households/businesses, Affin analyst Tan Ei Leen said in a July 24 note.
Among the positives from the session, Tan said, was the take-up rate of the loan moratorium by households and enterprises, which was at 90% since the commencement in April this year, and had declined to 85% recently.
But banks would also be subject to elevated credit losses until next year, said Tan, as BNM had guided that upon the expiration of the loan moratorium by the end of September, there would not be an extension.
Banks instead would continue to offer targeted financial aid in the form of “restructuring and rescheduling” for struggling borrowers, she added.
“At this juncture, we continue to be wary of further rise in business foreclosures, especially for higher risk sectors such as the tourism-related, wholesale and retail, airlines-related, construction, real-estate and manufacturing,” Tan said.
She has maintained her underweight call on the sector as banks would be expected to weather challenging economic conditions.
“Though we expect a 13% y-o-y recovery in sector core net profit in 2021E, this is subsequent to a drastic decline of 28.6% y-o-y in 2020E,” she said. – July 24, 2020
