Profits under pressure

Moody’s: Loan moratorium to affect banks

PETALINGJAYA: Moody’s Investors Service has said that Malaysia’s three largest banks by assets face growing pressure on profitability from the coronavirus-led downturn, with asset quality likely to deteriorate from 2021 as loan repayment moratoriums expire.

The three banks are Malayan Banking Bhd (Maybank), CIMB Group Holding Bhd and Public Bank Bhd. Moody’s report followed the release of their first-quarter results.

“A sharp increase in credit costs and contracting net interest margins (NIMS) will weigh on the profitability of all three banks this year, while the impact on asset quality will become evident only from 2021, as a large share of loans will remain under moratoriums for most of the year,” said Alka Anbarusa, a Moody’s vice-president and senior credit officer.

The share of impaired loans increased by 36 basis points (bps) to 3.4% at CIMB and by seven bps to 2.7% at Maybank, largely driven by new loan impairments in Singapore and Indonesia.

Asset quality was stable at Public Bank, which is more focused on the Malaysian market with 80% to 90% of its loans under repayment moratoriums.

In comparison, so far, just 45% to -50% of loans are under moratoriums at CIMB and Maybank, although the banks expect the percentage to increase.

“The banks’ strong loss-absorbing buffers will help mitigate the rise in asset risk, with loan loss reserves exceeding 100% of impaired loans at most bank as of March 2020,” added Anbarusa.

Capitalisation should remain stable as capital generation will outpace capital consumption due to weaker loan growth. Liquidity will also remain strong, underpinned by deposit growth.

Maybank’s net profit in the January-march 2020 period rose by Rm240.39mil or 13.29% year-on-year (y-o-y) to Rm2.05bil. Meanwhile, its revenue rose 1.9% y-o-y to Rm13.22bil from Rm12.97bil in the same quarter a year ago.

The bank, which is also South-east Asia’s fourth-largest bank by assets, hence hinted at potentially lowering its return on equity (ROE) target for financial year 2020 (FY20), which was raised to 11% previously.

While Maybank’s net profit jumped 13% y-o-y in the first quarter of FY20, the bank said the latest results were not representative of the next three quarters’ financial performance.

It also expects its asset quality to weaken further once the ongoing loan moratorium period ends by end-september.

CIMB’S FY20 first-quarter core net profit fell 57% y-o-y to Rm508mil, as loan loss provisions tripled, while trading income came in weak. The country’s second-largest lender by assets delivered a low ROE of 3.7%, falling short of management’s 9% to 9.5% target.

During the quarter, the bank put through a provision of about Rm430mil against an oil trader which had defaulted in the first quarter of FY20. It also put through additional provisions of Rm100mil in Indonesia for a corporate in the wholesale sector.