The Special PR1MA End-Financing Scheme is targeting some 15k in unit sales for 2017 with AMBANK, CIMB, MAYBANK and RHBBANK being part of the scheme in providing easier financing. However, we see little impact to the four banks as their loan books will hardly be elevated. Maintaining our view ahead that the banks will be cautious on asset quality with tight approval rates; the momentum of the system loan growth will hence likely to be subdued for 2017. We maintain a neutral call for the sector. Most of the banking stocks in our universe are maintained at MARKET PERFORM with the exception of CIMB (TP: RM5.27) which is rated as OUTPERFORM with AFFIN (TP: RM2.20) maintained at UNDERPERFORM.

Target – 15k units. Yesterday, PRIMA announced that the Special PR1MA End-Financing Scheme (SPEF) for first-time house buyers announced in Budget 2017 will benefit at least 15,000 buyers. To recap, the Government in Budget 2017 announced the introduction of the PR1MA end financing scheme, easier financing coupled with lower rejection rate with total loan from 90% to 100%. The scheme will be implemented with effect from 1 January 2017 until 31 December 2018 and involved collaboration with the Government, Bank Negara Malaysia (BNM), Employees Provident Fund (EPF) as well as the four major banks namely; Maybank, CIMB, RHB and AmBank. Additional details of the scheme include: (i) step-up financing and the step-up financing with EPF Account 2 withdrawal options where for the first 5 years only the interest needs to be paid and the principal amount payments kicks in only from Year 6 onwards, (ii) interest fee for this new scheme will be higher at 4.75% than the average conventional loan of 4.45%, and (iii) PR1MA targets 15k units to be sold in 2017.

Minimal Impact to the Banking Sector. Off course, on hindsight, the direct beneficiaries will be AMBANK, CIMB, MAYBANK and RHBBANK, encouraging them to lend more to the residential property segment which at the moment constitutes 23.5% of their combined loans (based on 3QCY16 figures). However, we are neutral on the impact. As the target for 2017 involves 15k units only (assuming an average price of RM350k-400k per unit) at 95% financing, we estimated the banks will fork out between RM4.9b to RM5.7b in new loans or an extra 2.1% to 2.4% to the aggregate of their total outstanding loans. Impact on asset quality, on the other hand, is also expected to be benign. Assuming a 20% default rate, we estimate that the GIL ratio of the combined banks will increase by 10bps to 2.57% on average.

CIMB likely to receive the bulk of the financing. While details are not clear on how the targeted 15k units will be carved out among the four banks or who or how among them will get the bulk of financing scheme, we believe that CIMB will be able to acquire the most. Referring to Table 2, we see that CIMB’s exposure to the residential property segment is the highest among them, increasing by 13bps since 1QCY16 although its average lending yields (ALR) is the highest in the industry at 5.16% in 3Q16 (vs industry’s 4.55%), implying higher appetite for mortgage loans. Maybank’s exposure to the property segment has been trending downwards despite the easing of its lending rates implying lower appetite in this segment. With minimal impact to the industry and pending the release of the banks’ quarterly results this month, we maintain our

MARKET PERFORM calls for most of the banking stocks in our universe except for AFFIN (TP: RM2.20) which we maintain as UNDERPERFORM rating while CIMB (TP: RM5.27) is rated as OUTPERFORM.

Source: Kenanga Research - 15 Feb 2017