Yesterday, the Prime Minister unveiled the PEMULIH aid package (pakej perlindungan rakyat dan pemulihanekonomi). Among the initiatives provided, the package reintroducesan automatic blanket moratoriumforselectedindividualaccountsand more widely, ablanket moratorium to borrowers of all income brackets (B40, M40,andT20) which is granted upon application.At present, the banks believe that they are wellpositioned for such a measure,gleaningfrom their experienceduringthe Apr-Sep 2020 moratorium (estimated to have amounted to RM90b) as well as ongoing targeted assistance programs.Recall that thesaidmoratoriumgave rise to a total“Day-One”modification loss ofRM5.2b between the banks within our coverage in CY20. That said, it is likely the overall impact this time around could be more moderate given the needfor applications. Meanwhile, in lieu of the prolonged lockdown from MCO 3.0, we take this opportunity to tone down our loans growth assumptions for the banks under coverage.Meanwhile, wealso downgrade our sector call to NEUTRAL (from OVERWEIGHT) as sentiment for the sector is likely to take a backseat and corporate guidances are expected to see downward revisions.

More relief measures amidst unyielding Covid-19 cases. With daily new Covid-19 cases still hovering above the 4,000/day benchmark, the government have sought to continue with implementing lockdown restrictions and the temporary closure of non-essential sectors. With this, a six-month moratorium is being reintroduced for all SMEs and individual borrowers, consisting of all income brackets (i.e. B40, M40, and T20). Other measures include moratoriums on education loans (PTPTN) as well as insurance and takaful commitments but this will not be of notable impact to the banks.

Different this time around? The previous blanket moratorium in Apr-Sep 2020 was implemented on an automatic basis whereas the present one requires a proper application by the borrower. That said, it is expected to be seamless with no formal documentation involved. However, due to this, there is an uncertainty on the overall exposure in modification loss by the banks. In CY20, the ten banks within our coverage were exposed to about RM5.2b in modification loss which was supposed to be progressively unwound in the years to come.

The moratorium would hence translate to an expansion in target assistance programs by the banks, ranging between 7-16% of gross loans. This could translate to further credit cost provisioning as troubled business environment and income streams would lead to more delinquencies, not to mention hampering loans demands in the near term. As such, we anticipate downside bias revisions to the corporate guidance by the banks post-1QCY21 results (refer to Table 1). As of Apr-2021, system loans growth has only creeped up 3.9% YoY with household loans (+6.2% YoY) cushioning the softness in business loans (+0.6%). With the current macro-economic environment in place, we believe that our previous industry loans growth assumption of 4-5% could be overly optimistic and hence, we take this opportunity to revise our loans growth expectations for the banks under our coverage (now 3-4% for sector wide) and its corresponding impact to their respective calls (refer to Table 2).

Downgrade to NEUTRAL. In lieu of the above, we reckon that investors’ appetite is likely to pivot away from the banks. To reiterate, there are earnings downside risks arising from: (i) modification losses, (ii) higher provisioning, and (iii) weaker-than-expected loans growth. For those who have to stay invested, we recommend accumulating MAYBANK (OP; TP: RM10.65) as its strong dividend yield potential (7-8%) will continue to provide cushion to investors seeking a long-term position. Additionally, despite being the leader in loans market share, it commands a fair GIL ratio of c.2% (within industry average). To us, this indicates that its books are well guarded with tight asset quality checks. On the other hand, RHBBANK (OP; TP: RM6.20) commands an industry leading CET-1 reserve of c.16% which enables greater allowance to implement capital management strategies, particularly during this uncertain times.

Source: Kenanga Research - 29 Jun 2021