KUALA LUMPUR: Dropping accrued interest of hire-purchase (HP) loans and fixed-rate Islamic financing will be more negative for Public Bank Bhd, Malayan Banking Bhd, AMMB Holdings Bhd and Hong Leong Bank Bhd.
Affin Hwang Capital named the four as those with the highest exposure to HP loans particularly.
Public Bank has the highest exposure with HP loans making up 15.7 per cent or RM51.77 billion of its total outstanding loans as at end-2019.
HP loans accounted for RM49.9 billion or 9.5 per cent of Maybank's total outstanding loans in Malaysia of RM523.49 billion as at end-2019, Affin Hwang said.
The firm said the banking sector would have to take a larger impact of a "modification loss'" on their income statements if Bank Negara Malaysia heeds the Finance Ministry's call to waive the accrued interest.
A "modification loss" is the difference in the gross carrying amount of a loan (or financial asset) based on the difference between the present value (PV) of the modified contractual cash flows vis-à-vis the PV of the original contractual cash flows before any modification to the terms of the loan.
"Public Bank, Hong Leong Bank, Maybank. Affin Bank and AMMB may potentially have a larger modification loss being recognised in their income statement vis-à-vis banks with more variable rate loans arising from the moratorium period granted," Affin Hwang said today.
The firm maintained its sector "underweight" call, as it expects a deterioration in earnings while the introduction of additional measures by Bank Negara had put further pressure on banks' liquidity and funding.
Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff estimated that banks would incur some RM2 billion income losses if the accrued interest on the loans is lifted.
Banks that offer predominantly fixed rate financing would suffer more, he added.
Razman said interestingly, the major shareholders of all nine local banks listed on Bursa Malaysia were government institutions such as the Employees Provident Fund, Permodalan Nasional Bhd and Khazanah Nasional Bhd.
"Therefore, if these banks post reduced profits for the year, their depositors and investors will receive lower dividends."
Razman said Bank Negara must understand that the moratorium was introduced because some individuals were having hard times paying their loans during the Movement Control Order.
"Perhaps the middle ground is to allow moratorium for six months without charging the accrued interest but the banks will receive some form of tax exemption so that their annual profits will not be affected much.
"This way, the affected individuals can still benefit from the moratorium and banks will not suffer from the modification loss," he said.