BNM’s bold measures will protect banks’ earnings — Credit Suisse

This article first appeared in The Edge Financial Daily, on March 26, 2020.
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KUALA LUMPUR: The bold relief measures announced by Bank Negara Malaysia (BNM) yesterday will help to protect banks’ earnings, and hence dividends from excessive shocks, according to Credit Suisse.

Specifically, addressing the strain on liquidity will ease pressure on funding costs for Malaysian banks, the firm said.

As interest will still be accrued on the loans under moratorium and restructured, Credit Suisse expects banks’ interest incomes to not be materially affected.

“We expect banks to hold back on pursuing loan growth given the strain on cash inflows,” Credit Suisse equity research analyst Danny Goh said in a note.

Earlier yesterday, BNM announced measures in support of efforts by banking institutions to assist individuals, small and medium-sized enterprises (SMEs) and corporations to manage the impact of the Covid-19 outbreak.

The measures include a six-month deferment for all loan/financing repayments beginning next month, applicable for all ringgit-denominated performing loans that have not been in arrears for more than 90 days as at April 1.

For credit card facilities, BNM said banking institutions will offer to convert the outstanding balances into a three-year term loan with reduced interest rates to help borrowers better manage their debt.

Corporates are also allowed to reschedule and restructure their loans with the bank.

On this, Goh said the measures provide a massive relief on cash flow for households, considering that Malaysia has household debt-to-gross domestic product ratio of 82%, as well as for SMEs.

“The six-month moratorium to service debt for individuals and SMEs [estimated combined 75% of system loans], allowing restructuring of corporate loans and concessions on treatment of Covid-19 as a temporary phenomenon in the MFRS 9 (Malaysian Financial Reporting Standard 9) model that drives provisions, enabling banks to have more flexibility on credit loss provisioning,” he said.