MoF’s instruction to exempt 3 months interest payments for B50 segment under loan moratorium is a negative development but unlikely to have material impact to banks. Based on our estimates, the maximum interest foregone for 3 months is <7% (most impacted: Affin, BIMB; least impacted: Maybank, CIMB). However, forecasts are unchanged till we gather more updates from banks. In any case, we have rolled our valuations to FY22 and this is a one-off event. We reckon price weakness is an opportunity to accumulate. Maintain OVERWEIGHT; BUY calls include: Maybank, Public, RHB, BIMB & Affin.
According to The Edge, the Ministry of Finance (MoF) has instructed banks to work on exempting interest payments for B50 recipients of the loan moratorium for a period of 3 months in 4Q21.
Negative development but not likely to have significant impact to banks. Based on our calculations, the interest foregone for 3 months is <2% of earnings. Even if we assume a higher loan moratorium take-up rate by the B50 segment, maximum impact is <7%. From our analysis, Affin and BIMB would lose most while Maybank and CIMB are the least affected. Although this covers a wider array of loans, the damage is still lesser vs the 1st automatic loan moratorium (11% of FY20 earnings); this is because it is only a 3 months impact (instead of 6 months) and banks’ FY21 profit base is larger mainly due to lower provisioning level.
Forecast. Unchanged till we gather more updates from banks. In any case, we have rolled our valuations to FY22 and we view this event as one-off (it doesn’t affect future financial performances).
Retain OVERWEIGHT. We reckon price weakness is an opportunity to accumulate. The sector’s risk-reward profile continues to skew to the upside as Covid-19 woes will likely fizzle out in 2022 while the state of the economy and banking sector will only get better in time. Furthermore, valuations are undemanding and there is ample liquidity in the market. For large-sized banks, we like Maybank (TP: RM9.40) for its strong yield, and Public Bank (TP: RM4.50) for its resilient asset quality, over CIMB (TP: RM5.10). For mid-sized banks, RHB (TP: RM6.85) is favoured more than AMMB (TP: RM3.00) as the former has a higher CET1 ratio and also, larger FVOCI reserve to buffer against potential yield curve volatility. For small-sized banks, BIMB (TP: RM4.80) and Affin (TP: RM2.15) are preferred over Alliance (TP: RM2.80); we like the former for its positive long-term structural growth drivers and better asset quality while the latter has value unlocking potential.
Source: Hong Leong Investment Bank Research - 15 Sept 2021