Profit of banks forecast to fall 14.4% on waiver

PETALING JAYA: The move by banks not to charge additional interest on hire-purchase (HP) loans for the six-month moratorium period may lower banks’ financial year (FY) forecast net profit for this year and next year by 14.4%.

CGS-CIMB research said banks would have to provide for a Day-1 modification loss in the second quarter, which could total Rm4bil or 2.4% of the total HP loans of Rm165.3bil in the industry. “Applying the same percentage of 2.4% to the HP loans of individual banks, we estimate that the modification loss would reduce banks’ FY20-FY21 forecast net profit by 14.4%,” it said.

The Finance Ministry said on Wednesday that banks have agreed to waive the interest on HP loans during the deferment period and HP borrowers would continue to pay the same monthly instalments after the moratorium period.

This came as a negative on Bank Negara’s earlier announcement on April 30 that banks can restructure the HP agreements by changing the monthly instalments post moratorium, it said. Based on estimates, it said Affin Bank would be the most impacted bank by the modification loss, lowering its FY20F net profit by 45.7%. This is because its proportion of HP loans of 23.2% at end-dec 19 is the highest in the sector. The impact would be smallest at 4.2% for Alliance Bank’s net profit, as its proportion of HP loans is the lowest in the sector, at only 1.9% at end-dec 2019.

Meanwhile, Maybank IB Research estimates the one-off “day one” provision, or modification loss under MFRS 9, following the banks’ decision not to charge additional interest on HP instalments, could be about Rm4.4bil. It said the decision which is over the six-month loan moratorium period (April to September 2020) is positive to consumers but it comes at a cost to the banks.

“This loss relates to the opportunity cost over time from not having received the additional cashflow. By our estimates, the modification loss for the banking industry as a whole works out to be about Rm4.4bil,” it added. Aminvestment Bank said “the waiver of the accrued interest for fixed rate HP loans for the moratorium will see higher modification loss adjustments compared to floating rate loans.”

“There will a one-off impact for the adjustments on the interest income and margin of banks in the second quarter of 2020.

“Nevertheless, banks’ interest income will recover from the fourth quarter 2020 onwards when cash flows are received through borrowers’ instalment payments after the moratorium.”

Based on statistics for March 2020, the outstanding amount for the industry’s HP loans is around Rm166bil.