Last Friday, BNM took another step to address household indebtedness by introducing several new measures, including curbing the maximum tenure for personal loans and mortgages. We think the measures, especially for personal financing, are mainly aimed at the NBFIs and see minimal immediate impact on the banks. Overweight sector call retained with CIMB, AMMB and Maybank as our top picks.

- Further measures announced to rein in household debt. Bank Negara Malaysia (BNM) announced last Friday several measures aimed at avoiding excessive household indebtedness. The measures, which take effect immediately, are:  1) Maximum tenure of 10 years for financing extended for personal use; 2) Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties; and 3) Prohibition on the offering of pre-approved personal financing products. These measures apply to all financial institutions regulated by BNM, credit cooperatives regulated by the Suruhanjaya Koperasi Malaysia, MBSB and AEON Credit.

- Measures on personal loans mainly aimed at NBFIs ... We believe the new measures introduced for personal financing mainly targets the NBFIs (including DFIs) and see limited impact for the banking system and banks under our coverage. This is because: 1) Personal loans only formed 5% of system loans and 2-7% of total group loans for the banks under our coverage (domestic personal loans only) as at 31 Mar 2013; and 2) Personal loans are not a key driver for loan growth. Y-o-Y growth averaged -1%, based on 31 Mar 2013 figures.

- … while capping mortgage tenure to 35 years not expected to impact banks too significantly.  As for the impact from capping the maximum mortgage tenure to 35 years (from 45 years previously), feedback from the banks so far is that such cases are minimal and not ignificant. We do not discount the possibility of BNM introducing further measures to cool the property market down the road. This is amid reports that BNM plans to curb DIBS. Assuming DIBS curbs are implemented, on top of last Friday’s  mortgage tenure  cap, we estimate the impact to our loan growth assumptions for the individual banks could be as much as 90bps. Banks that are most defensive are: 1) Banks with more diversified loan books, be  it geographical or sectorial diversification; and 2) Banks that  are less reliant on mortgage growth driving group loan growth.

- Investment case. No change to our  Overweight stance on the sector. CIMB, AMMB and Maybank are our sector picks. Our top picks are also less vulnerable to the impact of domestic policy changes on household credit demand given their diversified domestic loan book as well as, for CIMB and Maybank, their geographical diversification.

Source: RHB