PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 26 Nov 2021, 10:48 AM


Banking - Clarity on URUS

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The Ministry of Finance has provided more clarity on the Financial Management and Resilience Programme (dubbed URUS – Program Pengurusan and Pertahanan Kewangan), a day after it was announced by YAB Prime Minister Dato’ Seri Ismail Sabri Yaakob. URUS is a comprehensive financial assistance plan and crafted collaboratively by the banking industry and Agensi Kanseling dan Pengurusan Kredit (AKPK).

The scheme is open to individual customers, on application, who are under an existing repayment assistance programme (e.g. Targeted Repayment Assistance, PEMERKASA Plus, PEMULIH, bank’s own rescheduling and restructuring, etc) as at Sept 30, 2021 and meet the following criteria:

  • from the B50 income segment (customers with gross household income of RM5,880 or lower). Evidence of household income will be required for customers who are not registered recipients of Bantuan Sara Hidup (BSH) or Bantuan Prihatin Rakyat (BPR).
  • experienced either loss of employment, or reduction of income of at least 50%.
  • loan/financing is still performing (not in arrears exceeding 90 days) as at the date of their application.

Individual customers who fulfil the criteria can apply for URUS through one of their banks starting from Nov 15, 2021 until Jan 31, 2022. The plan will encompass:

  • an interest/profit waiver for a period of three (3) months, commencing the month following the customer’s onboarding into the scheme, or
  • a three (3)-month interest/profit waiver together with reduced instalments for a period of up to 24 months in total. During this period, customers with unsecured personal loans/financing and credit cards may also benefit from reduced interest/profit rates to help alleviate their financial burden.

Thoughts. In Bank Negara Malaysia’s Financial Stability Review for 1H 2021, it was noted that while most household borrowers remain resilient with prudent debt service ratios and sufficient financial buffers, some borrowers were facing greater financial stress. Based on simulations, 11%-15% of household borrowers may need to drawdown on their cash buffers to service debt. Of these borrowers, 1.9% are at risk of depleting their cash buffers. The share of household borrowers under repayment assistance rose sharply to 25.4% of total household loan accounts in July, in line with the further expansion of repayment assistance by banks. Targeted at the truly needy, this move is therefore necessary though not particularly a welcome one.

Expected to cost the banking system some RM1bn to fund the cost of the reduction in interest/profit costs, the quantum is certainly a more manageable one and less of a surprise as when the idea was first mooted in mid-September. With clarity admittedly lacking then, it was also merely an instruction by the Ministry of Finance for banks to work on the exemption from interest payments for loan moratorium recipients under the B50 category for the October to December period of 2021. Bank Negara Malaysia (BNM) had cautioned that:

  • banks’ credit ratings might be downgraded to reflect weaker future earnings and that this would make it more expensive for banks to raise capital. Banks' higher cost of funds would then be passed on to borrowers
  • it was "imperative that short-term relief measures do not incur significant long term damage to the economy”, as it highlighted the importance in considering the effects of an interest rate waiver on future lending decisions by individual banks

While we are not likely to see banks refraining from funding any particular segment of borrowers due to the notion of higher risk profiles so as long as they remain creditworthy, we have however seen cautionary statements from one particular ratings agency. S&P Global Ratings, in late-September, noted that the downside systemic risks for Malaysian banks are on the rise. Affirming long-term and short-term issuer credit ratings, they however said the outlook on all the five Malaysian banks they rated is negative. Reasons cited were that the economic risk trend for Malaysia had turned negative and that Malaysian banks were also facing rising risk in the competitive environment due to negative government intervention.

In a statement released overnight, BNM says it welcomes the move and further encouraged those who are not eligible for URUS to also approach their banks to discuss other repayment solutions that suit their financial circumstances. Separately, BNM also said there will be further enhancements to its Fund for SMEs in Budget 2022, targeted at assisting businesses in their cash flow management and repositioning themselves with the reopening of the economy.

Short-term volatilities notwithstanding, current assistance programs are notably one-off in nature. Any modification losses incurred will eventually be unwound over the years. Liquidity in the system is still ample, with the banks well capitalized. Expected rate normalization in 2022 and anticipated economic recoveries will bring about asset quality improvements and loans growth, all of these medium- to longer-term boons to the sector. We do not see conditions getting significantly worse than 2020 levels. While we maintain our Neutral view on the sector, it continues to be with a positive bias given its lagging valuations relative to the broader market. For sector exposure, we like Alliance Bank and Maybank.

Source: PublicInvest Research - 15 Oct 2021

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