Breathing space for borrowers and banks | Malaysian Institute of Estate Agents

Breathing space for borrowers and banks

2020-07-30

PETALING JAYA: The targeted extension of the moratorium is granting both borrowers and banks some breathing space, as Malaysia recovers from the coronavirus (Covid-19) pandemic.

Borrowers who are struggling to start repaying their loans come October now have their burden eased for at least three to six months.

Banks will finally see more inflow when the blanket moratorium ends in September and when the targeted moratorium kicks in, this will allow the financial institutions to better manage their non-performing loans (NPLs).NPLs were expected to spike starting October but the targeted moratorium has now given banks the leeway to delay the eventual increase and to better contain it.

Equitiestracker Holdings Bhd head of research Lim Tze Cheng said the targeted moratorium benefits both ways, where borrowers facing difficulties will not be forced into bankruptcy and banks will be able to prevent their NPLs from blowing up.

“Many people are pessimistic, thinking that the moratorium is something bad for the banks.

“Many forgot that the purpose of the moratorium is to prevent massive NPLs on the banks.

“The NPLs may increase substantially after the moratorium, but it would have been much worse without one, ” he said, adding that it was just a timely shift of collection.

UOB Kay Hian head of research Vincent Khoo said while it was good to provide assistance to those who needed it, there could also be a problem of overhang if the economy and the job market did not improve.

He added that investors recognised that there are continuing overhang issues which will be a drag on the economy and recoveries will be less certain.

“All eyes are on the first-quarter numbers next year to get a better gauge of what is the level of the NPL.

“Banks are already making assessments to increase their credit charge and even though the accounts may not be NPLs, they take a more proactive approach to try to be prudent in their credit cost expectations, ” said Khoo, adding that this was a forward-looking assessment, combined with prudence.

A banking sector analyst said in the near term, the NPLs will still look quite well contained but the key impact would be asset quality, as the targeted moratorium would help to contain the asset quality outlook over the near to medium term, at least until the first quarter next year.

“That means any meaningful deterioration may only start to be seen in the second quarter of 2021 onwards.

“But because banks are allowed to frontload provisions, it does not necessarily mean that provisions will not rise in 2020, ” he said, adding that the key question the market has is to what extent the NPLs and the provision impact and the targeted moratorium will delay the recognition of NPLs.

He also said that NPLs should only start to spike next year and not this year.

“The targeted moratorium is nothing unexpected and there is not much impact to earnings.

“That’s why if you look at the banking counters post-announcement, there was not much movement.

Out of nine listed banking counters yesterday, five rose while four declined.

BIMB Holdings Bhd led the advancers with a 3.52% or 12-sen increase to RM3.53, while Alliance Bank Malaysia Bhd was the top loser among banking counters yesterday with only a 1.38% or three-sen decline.

Rakuten Trade Research vice-president Vincent Lau (pic below)

said the market took the news positively, as the impact to NPLs would not be as severe and even with the modification loss, it was only a one-off thing.

Meanwhile, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said the targeted approach would be better than the blanket moratorium, as it allowed banks to conduct their own assessments.

“This is more flexible and more targeted, allowing banks to better allocate their resources according to the financial positions of the individual borrowers.

“Now that we know what’s next after Sept 30, borrowers and banks will have to proactively engage each other to craft the most appropriate repayment programme to ease the financial and cash-flow burden.

“As we are slowly moving to stabilisation and recovery, financial assistance relief programmes are still very much needed, ” he said.

AmBank Group chief economist Anthony Dass (pic below) said the targeted way was nothing new as it was similar to what was done at the height of the Asian Financial Crisis in 1997 and 1998.

He added that the impact to banks earnings will be much significantly lower than the modification loss in the second quarter under the automatic loan moratorium.

Bank Negara said in a statement that it has been working closely with banks to ensure that assistance continues to be provided to borrowers affected by Covid-19.

“Businesses in almost all sectors have since resumed operations, and the vast majority of Malaysians have returned to work.

“With that, many borrowers who initially opted for the moratorium have started to resume loan repayments.

“Nonetheless, it is recognised that income and cash-flow challenges remain for some, especially those who have lost their jobs or experienced a reduction in incomes, ” it said, adding that a targeted approach ensured that financial resources and attention are prioritised where they are needed the most.

The central bank said it will monitor the progress of banks in assisting borrowers that may continue to face temporary financial difficulties.

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