Poser on extending loan moratorium

PETALING JAYA: Any extension of the loan moratorium which ends in September could significantly reduce banks’ cash inflow and may see some impact on the system’s liquidity.

Analysts told StarBiz that there could also be a modification loss in the form of a one-off day one provision for banks, as they would not be able to collect the additional interest, for example, on hire purchase instalments for the moratorium period if it were to be extended.

Maybank Investment Bank Research in a note last month said it estimates the modification loss (from the existing moratorium) for the banking industry as a whole to be about RM4.4bil. Having said this, the extension of the loan moratorium would not result in a spike to impaired loans, analysts noted.

An analyst with AmBank Research said: “An extension of the moratorium is likely to increase banks’ recognition of day one modification loss in the second quarter of this year. Also, it could result in slightly tighter liquidity, as there will be an extended period where banks will have no cash inflows from consumer and SME loans due to the further deferment of repayments.

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“An extension will not cause impaired loans to spike up. It will further delay the surfacing or recognition of any impaired loans.” The gross impaired loan (GIL) ratio for April was 1.6%, similar to the previous month.

In a recent interview, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said it was up to the banks if they wished to extend the six-month loan moratorium.

He said if the moratorium was extended, it should be done in a more targeted way. “The first moratorium was an automatic one. So let’s target people who are unemployed and companies which really need it. In my view, banks should continue the loan moratorium for those in need, which means restructuring their loans, ” Tengku Zafrul said in an interview with The Edge.

The six-month moratorium that began in April 2020 is one of the Covid-19 incentives to relieve the burden of borrowers, especially those affected by a loss of income. The moratorium will end on Sept 30.

Rahim & Co International Sdn Bhd real estate agency CEO Siva Shanker suggested that the banks extend the moratorium for another six months to a more targeted group which have been directly impacted by Covid-19. “You don’t need to extend the moratorium to everybody, but it could be structured for a certain group of people. This is to avoid blood in the water.”

The Association of Banks in Malaysia could not be reached for comment on whether there is a need to extend the moratorium.

Commenting on the extension, RAM Ratings co-head of financial institution ratings Sophia Lee said there could be a significant reduction in the cash inflow of banks.

“That said, comfort can be derived from Bank Negara’s highly accommodative stance in ensuring ample liquidity in the banking system. Apart from the usual provision of liquidity under its open market operations, the central bank has also taken pre-emptive measures to boost liquidity through the recent 100 basis point cut in the statutory reserve requirement (SRR), as well as allowing banks to fully recognise Malaysian Government Securities and Malaysian government investment issues in complying with the SRR.

“Banks are also allowed to operate below the minimum liquidity coverage ratio (LCR) of 100% currently, although the central bank expects banks to restore their buffers to the minimum regulatory requirement within a reasonable period after Dec 31,2020.”

AmBank Research is projecting a GIL ratio of 1.6% to below 2% this year. RAM Ratings’ Lee does not expect the ratio to see a material increase from its current 1.6% level for 2020.

“We expect an eventual deterioration in the banks’ asset quality, the actual impact of which will be more prominent after the moratorium ends, ” she noted.

Meanwhile, UOB Kay Hian in a research note said the banking earnings have yet to bottom out, given the expected spike in the GIL ratio post-loan moratorium.

As such, it said the sector could remain on consolidation mode, prompting the brokerage to maintain a “market weight” call on the sector. “However, with valuations at below global financial crisis lows, coupled with the gradual economic recovery in 2021, the sector could start to perform in a more sustained manner from the first quarter of next year onwards, depending on the extent of asset quality deterioration post-loan moratorium, ” the research house said.

UOB said it expects earnings to worsen in the next few quarters. First-quarter sector net profit contracted 11% year-on-year (y-o-y) versus its full-year projected 21% y-o-y contraction.

TA Securities has maintained its “underweight” stance on the sector, as it forecasts net profit to contract by 24.8% this year. It said the outlook for next year also looks increasingly uncertain and expects some downside risk from the current growth profit forecast of 10.2% for 2021.