Kuala Lumpur 26°C
26/03/2020 11:14 AM

KUALA LUMPUR, March 26 -- MIDF Amanah Investment Bank Bhd has maintained its positive stance on the banking sector following Bank Negara Malaysia’s (BNM) announcement of a slew of measures to support individual and small and medium enterprise (SME) borrowers.

BNM announced yesterday several measures to support the banking sector in its efforts to assist individuals and SMEs impacted by the Covid-19 pandemic.

They include an automatic moratorium on all loan repayments (principal and interest) for individuals and SMEs for a period of six months from April 1, 2020 as long as they are not in arrears for 90 days and loans are denominated in the Malaysian ringgit.

In a note, MIDF said the measures provide flexibility for banks to respond swiftly given the large financial buffers that have been built up over the years.

The research firm opines that the measures by BNM are to support the real economy by giving a respite to current borrowers as well as encouraging lending.

“Giving a respite to borrowers will indirectly ensure that asset quality of banks remains stable.

“This should also encourage lending activities given that banks do not have to worry about delinquencies and impairment affecting their profit and loss (P&L) and capital.

“Lending will also be encouraged through the provision of ample liquidity to the system,” it explained.

MIDF said the moratorium and the subsequent treatment of such accounts give breathing room not just to the borrowers but for the banks as well.

The research house sees the payment deferment affecting banks in two ways -- through revenue and provisions.

“It will have an effect on banks’ net interest income, but we should not view this as revenue lost. We should expect to see weaker net interest income in the quarters where payment deferment is in place. Furthermore, interest is still accrued.

“The second impact will be on provisions as the accounts under moratorium will likely be classified as rescheduled & restructured (R&R) accounts, which will have to be classified as impaired. This will hit banks’ P&L via provisions,” it noted.

However, MIDF said it believes that BNM will have given leniency to the banks as moratorium accounts will likely not be considered R&R accounts, ensuring that credit cost will not spike, which should cushion the banks’ asset quality from deteriorating extensively.

“We believe that these measures are positive for the banking sector as they address the issue of asset quality and liquidity, and to a certain extent the cost of funds. It provides much breathing space for the banks.

“We believe that this will ensure banks’ profitability remains intact despite the current headwinds. Therefore, we maintain our positive stance on the sector,” said MIDF.

it added that its top picks remain Maybank with a target price (TP) of RM9.55, CIMB (TP: RM5.70) and Public Bank (TP: RM19.00).





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