Minimal impact on banks’ earnings from extension of repayment assistance

The extension will lead to an increase in the banks’ NPL although it will not be alarming


THE extension of repayment assistance offered by banks including the existing targeted moratorium due to the reimposition of the Movement Control Order (MCO) in several states and the federal territories, will have minimal impact on banks’ earnings.

MIDF Research head of research Imran Yassin Mohd Yusof said the lenders would not be too burdened by the assistance as it is not a blanket approach that was implemented for six months last year to assist borrowers.

“Given the assistance is more targeted rather than a blanket approach like we saw last year, we expect the impact on banks’ earnings will be minimal.

“We do not expect it to have much impact on the net interest income, as all likelihood, banks will still be able to recognise the income. Besides, we expect that lower provisions this year will moderate any impact to net interest income,” he told The Malaysian Reserve (TMR) in an email reply yesterday.

The extension on the existing loan moratorium will, however, lead to an increase in the banks’ non-performing loans (NPL) although it will not be alarming, said Imran Yassin.

He noted banks have increased their buffers for loan losses which is believed would be able to absorb any unexpected increase in the NPL.

Many of the local banks did not announce any dividends to shareholders last year due to the fallout from the pandemic with many investors and analysts hoping the fourth- quarter financial reporting could see a change in the stand despite the fresh rise in infection numbers and the fresh MCO with emergency rule to add.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the assistance is applied to lending or financing instead of bank deposits.

This means lenders would still have to pay the deposit, while at the same time, receive no cash from the financing contract during the moratorium period.

“So, there are some imbalances between cash inflow and cash outflow. The main worry obviously is the risk of non-payment beyond the moratorium period for example the credit risks,” he told TMR yesterday.

He said banks would be vigilant in their credit underwriting standard during an economic uncertainty as the risks of high unemployment and business failures would compromise the repayment capacity of borrowers.

“Therefore, it is best that borrowers come forward and be forthcoming in their state of finances with the banks.

“This would allow for a tailor-made solution to best suit the need of every borrower, which may include restructuring and rescheduling of the existing financing contract,” added Mohd Afzanizam.

In a joint statement yesterday, the Association of Banks in Malaysia (ABM) and the Association of Islamic Banking and Financial Institutions Malaysia said banks will continue to extend targeted repayment assistance, including an extension of existing moratoriums to those who have been affected by the MCO.

The extension applies to all Targeted Repayment Assistance schemes announced previously.

Borrowers or customers who have lost their jobs in 2020 or 2021 can apply for payment relief for a period of three months any time on or before June 30, 2021.

Individuals who have faced a reduction in income as a result of the pandemic are also eligible to lower their instalment amount in line with their income reduction.

For those in the M40 (middle 40%) group — who are recipients of the Bantuan Prihatin Nasional — the associations said banks have agreed to allow for self-declarations.

Individuals from the B40 (bottom 40%) income group who receive Bantuan Sara Hidup or Bantuan Prihatin Rakyat may opt for either a three-month deferment or instalment or to reduce their instalments by half for six months. Similar options are also given to microenterprises with loans or financing with an original facility amount of up to RM150,000.

“The repayment assistance for B40, M40 and micro enterprises are applicable for loans or financing approved before Oct 1, 2020, and are not in arrears for more than 90 days on the date the request for repayment assistance is submitted to the bank.

“All other borrowers or customers facing difficulties in making loan or financing repayments are also welcome to contact their banks to discuss suitable repayment assistance packages that meet their specific circumstances.”

ABM chairman and Maybank Group president and CEO Datuk Abdul Farid Alias said the banks remain committed to helping their customers who continue to face challenges in the current environment.

“We are able to customise our financial assistance schemes to the specific circum- stances of the borrowers so that they can quickly stabilise their financial situation and focus on other aspects of their lives which may need more pressing attention,” he added.

As at Dec 31, 2020, over 1.3 million applications for the repayment assistance have been received by the banks and 95% of them were approved.

The associations assured that the acceptance of the targeted repayment assistance during this period will not appear in the borrowers’ and customers’ Central Credit Reference Information System report.