Impact: POSITIVE

Measures

• 2% reduction in progressive income tax brackets for those earning between RM35k-RM100k (RM2.9k-RM8.3k/month),affecting the M40 segment as B40s largely do not fall into taxable income brackets

• 0.5-2.0% increase in progressive income tax brackets for those earnings between RM100k-RM1.0m, targeting upper M40and T20 segments

• 2% reduction (from 17%) for the first RM150k chargeable income by micro SMEs

• 3-month PTPTN loan repayment discount from 1 March 2023 of up to 20%

• Release of bankruptcy cases (estimated 130k individuals) owing

• Micro-lending allocation of RM1.7b towards micro SMEs and small vendors through Bank Negara, Bank Simpanan Nasionaland TEKUN; and RM10.0b towards SMEs

• Implementation of a “kill switch” policy by all banking institutions to enable immediate freezing of accounts (i.e. ATM cards)from the detection of suspicious activities

Comments

• We are positive on the further tax reduction seen to the targeted M40 groups as it would improve cash flows and sustainrepayment capabilities to the banks. We are undeterred by the additional taxes imposed to those earning above RM100kdue to the lower lower asset quality risks pegged against them.

• Similarly, the discount to PTPTN borrowers would lessen financial strains to allow for better repayability of other borrowings.

• We are unmoved by the release of bankruptcy cases are we do not anticipate the affected individuals to drag asset qualityin the near term. Strict lending and credit screening policies between banks may limit the size of financing permitted tothese groups until credit credibility could be rebuilt.

• The financing allocation initiatives to SMEs and micro SMEs will be a non-event to the listed banks as it is only participatedby the abovementioned government-owned entities.

• The implementation of a “kill switch” policy is a welcomed step to enhance banking security features as well as consumers’control over theft and unauthorised activities. That said, banks could be expected to incur additional IT spending to introducethis feature into their ecosystem.

Potential Winners/Losers

• While the above should be a general benefit to consumers, the immediate benefit to listed banks are limited to higherdisposal income from lower taxes to fulfil financing commitments. Still, this would be a meaningful boon as inflationaryconcerns are expected to press cash flows and may cascade to higher delinquencies in the medium term if left unchecked.

• Top picks for the sector are MAYBANK (OP; TP: RM10.40) for its leading dividend yields (7-8%), CIMB (OP; TP: RM6.40) for its defensive regional NOII performance, and ABMB (OP; TP: RM4.20) for its solid fundamentals outpacing large cappeers.

Source: Kenanga Research - 25 Feb 2023