MALAYAN Banking Bhd (Maybank) has in place pre-emptive provisions for vulnerable sectors and loans, hence any potential top-up in provisions for these accounts is unlikely to cause a sharp unexpected spike in the group’s net credit cost.
This shall allay concerns on the bank’s exposure to relatively sizeable corporate loan accounts within the oil & gas (O&G) and cruise industries that are currently facing varying degrees of financial constraints, according to UOB Kay Hian Research.
“The management remains cautiously optimistic on its net credit cost outlook. It alluded that 2021 net credit cost could come in lower than its 70-80bp (basis points) guidance and for 2022 net credit cost to register a slight improvement from 2021 levels,” analyst Keith Wee Teck Keong pointed out in a company update.
This latest re-assurance is timely in light of Genting Hong Kong’s financial troubles which have raised concerns of its potential impact to Maybank as one of the lead arrangers for US$600 mil (RM2.5 bil) and US$300 mil (RM950 mil) syndicated loan facilities.
“We believe that these concerns have been overplayed as Genting Hong Kong’s financial issues are not new, having missed loan repayments since August 2020,” noted UOB Kay Hian Research.
“As such, this account would have been placed under the watchlist in 2020 and with substantial pre-emptive provisions having been made across 2020-2021.
“The management did not disclose its exact loan exposure but assuming the two respective syndicated loans were shared between the eight and three banking groups involved respectively, this would imply a potential RM600 mil combined exposure to Maybank.
“As the bank’s management did not disclose its exact loan exposure but assuming the two respective syndicated loans were shared between the eight and three banking groups involved respectively, this would imply a potential RM600 mil combined exposure to Maybank.”
According to UOB Kay Hian Research, the O&G downturn which caught banks off guard back in 2015 when oil prices declined sharply has served as an excellent learning experience in provision management.
Back in 2016, the group’s O&G exposure consisted of 4.3% of its loans and it had identified 42% of the accounts (RM8.8 bil) under the watchlist.
“Coupled with the forward-looking nature of FRS9 provisioning, the group would have had sufficient time to build up pre-emptive provisions on these watchlist O&G accounts since 2016,” opined the research house.
“This prudent stance is reinforced by the fact that despite the recovery in oil prices, the group’s loan exposure to the O&G sector has declined to 2.6% of group loans (RM14 bil of which upstream segment accounts for RM2.4 bil).
At 12.13pm, Maybank was up 1 sen or 0.12% to RM8.31 with 1.57 million shares traded, thus valuing the company at RM98.71 bil. – Jan 27, 2022
