Will the opt-in moratorium adversely impact banks’ bottom line?

AT a glance, the six-month opt-in loan moratorium model which was dished out as part of the PEMULIH economic stimulus package yesterday is unlikely to have significant impact on banks

While there is no way of ascertaining the level of opt-ins to assess potential impact to banks’ bottom-lines, inferences can be drawn from the fact that there continues to be no significant signs of stress seen in banks’ asset qualities, according to PublicInvest Research.

“Industry gross impaired loans ratio has been steady at the 1.5+% level. This would suggest that the majority of borrowers are still servicing monthly commitments, and should continue to do so, a global meltdown notwithstanding,” opined analyst Ching Weng Jin in a banking sector update.

To re-cap, banks have agreed to provide six-month loan moratorium to all consumer (B40, M40 or T20) & micro as well as SME (small medium enterprise) borrowers.

When applying from July 7 onwards, applicants do not need to present any supporting documents to demonstrate loss of income or employment.

Compared to the earlier six-month (April 1 to Sept 30, 2020) blanket automatic moratorium, the latest moratorium requires borrowers to opt in. However, in the 2020 blanket automatic moratorium, all individual and SME borrowers’ loans and financing (with the exception of credit card) of less than 90 days in arrears were automatically included.

From publicly available financial reporting disclosures last year, PublicInvest Research said the country’s eight largest banking institutions were hit by a cumulative ~RM1.8 bil in net modification losses, an amount it does not expect to be replicated this time round.

“Impact to net profit is estimated at less than 5%,” noted the research house.

“While we maintain our ‘neutral’ view on the sector, it (banking sector) continues to be with a positive bias given the sector’s still-lagging valuations relative to the broader market,” suggested the research house.

“Eventual policy rate normalisation (margin expansion), sustained economic recovery (improved loans growth and asset quality) are mixtures for stronger earnings improvements going into 2022.”

Meanwhile, AmResearch reckoned that at this juncture, there remains a lack of clarity if interest will be allowed to be accrued and charged for all types of loans and financing in the latest loan moratorium exercise.

“If additional interest is allowed to be charged, then modification losses (mod loss) to be reported by banks in 3Q 2021 will be minimal,” opined analyst Kelvin Ong.

“On the flipside, if accrued interest is to be waived for all fixed rate HP (hire purchase) and personal loans for both conventional and Islamic banking similar to that in 2020, mod loss to be reported by banks in 3Q 2021 will be larger.

Mod loss is an accounting treatment in line with MFRS (Malaysian Financial Reporting Standards) 9 to factor in the time value of money due to the difference between the present value (PV) of the modified cash flows and the PV of cash flows when the fixed rate loans and financing were contracted. – June 29, 2021

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