KUALA LUMPUR: The exemption of interest payment for the bottom 50 per cent of Malaysians (B50) taking loan moratorium will not adversely affect banking groups' profitability, analysts said.
The interest foregone over three months would potentially range from 2.0-7.0 per cent of earnings as the B40 borrowers particularly were not a significant portion of banks' loans book, they added.
Analysts, nevertheless, are surprised by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz's announcement on Tuesday asking banking institutions to work on the exemption for a period of three months in the fourth quarter of 2021.
They, however, agreed that the directive would unlikely affect banks significantly.
"Based on our calculations, the interest foregone for three months is less than 2.0 per cent of earnings. Even if we assume a higher loan moratorium take-up rate by the B50 segment, the maximum impact is more than 7.0 per cent," said Hong Leong Investment Bank Bhd (HLIB) analyst Chan Jit Hoong.
Chan said the damage would still lesser compare to the first automatic loan moratorium last year, while banks' financial year 2021 (FY21) profit base could be larger mainly due to lower provisioning levels.
CGS-CIMB Research analyst Winson Ng estimated the impact from the interest exemption would be about RM1.42 billion, which could be regarded as a one-off item.
"This would lower banks' net profits by 5.0 per cent. However, the impact would be smallest for Malayan Banking Bhd (Maybank) at 3.9 per cent as only 61 per cent of its loans are in Malaysia."
On the flip side, Ng said the three smaller banks namely Alliance Bank Bhd, Affin Bank Bhd and BIMB Holdings Bhd could see the largest impact at around 3.0 per cent of their net profits for every one per cent reduction in gros interest income.
Ng said the impact would be largest at about 9.0 per cent for Alliance Bank and Affin Bank due to their weak net profits, brought about by high loan loss provisioning.
"We expect the least impacted bank to be Hong Leong Bank Bhd (at 1.5 per cent of its net profit) due to the strong associate contributions from Bank of Chengdu, which we project to account for 26.3 per cent of its FY22 net profit," he added.
Nonetheless, he expects earnings recovery this year while maintaining an "Overweight" call on the banking sector with its top picks including Public Bank Bhd, Maybank and Hong Leong Bank.
An MIDF Research simulation of the impact showed that the effect of such interest waiver against banks' earnings was less than five per cent.
Based on its channel checks, MIDF Research said the B40 borrowers were not a significant segment.
"We understand that it is below 10 per cent of banks' loans book. This is due to the fact that the loan amount will be comparatively less from other segments due to income constrain.
"On that note, we can assume that B50 segment (we presume it includes B40 and lower M40) will not be any significantly higher. Based on Bank Negara Malaysia's financial stability review for the second half 2020, borrowers with income of up to RM5,000 contributes to 37.9 per cent of total household debt," the firm added.
Meanwhile, Parti Pejuang Tanah Air economic bureau head Armin Baniaz Pahamin said interest exemption should be offered to all borrowers and should not be limited to three months.
"Moratorium and interest exemption will not lead to the closure of banks but it is the last lifeline for the rakyat and businesses before they are categorised as 'non-performing loan' and eventually declared bankrupt," Armin added.
He pointed that for the first quarter of 2021, Maybank had posted a 16.7 per cent growth in net profit, RHB Bank Bhd inched up 13.9 per cent, Ambank Group rose 3.9 per cent, Hong Leong Bank edged up 14 per cent and Public Bank grew 15.1 per cent.
"There were no banking groups registering losses in 2020 when the first loan moratorium was implemented. We hope that the government will provide interest exemption to all borrowers throughout the moratorium period and not just for three months," Armin said.