KUCHING: Hong Leong Bank Bhd’s (Hong Leong Bank) cash forgone due to the loan moratorium will be immaterial, analysts opine, as the bank’s liquidity is at approximately 85 per cent with liquidity coverage ratio (LCR) at more than 130 per cent.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that management guided for financial year 2020 (FY20E) loans growth in the range of five to six per cent (previously six to seven per cent) – based on the first nine months of FY20E (9MFY20E) performances.
“Loans will be underpinned by mortgages with loan stock available at an estimated RM10 billion with drawdown anticipated in 12 to 24 months,” Kenanga Research said.
“Working capital demand from small and medium enterprises (SMEs) is still significant and it is supporting this demand via the Special Relief Facility (SRF) fund – provided by Bank Negara Malaysia (BNM) and guaranteed by the Credit Guarantee Corporation (CGC).”
According to the research arm, at present some RM200 million to RM300 million have been approved with estimated RM900 million in the pipeline.
“We believe cash forgone due to the loan moratorium will be immaterial as the bank’s liquidity is at approximately 85 per cent with LCR at more than 130 per cent.
“Accounting for the six-month moratorium, LCR erosion is most likely at 10bps to 12bps. Liquidity can be supported by drawdown of the regulatory reserves, raising CET1 by 60bps.”
It noted that assuming 90 per cent opting in for the moratorium, cash foregone is likely in the RM500 million to RM600 million range per month.
Meanwhile, Kenanga Research expected a higher credit charge for FY20 as management hinted that they are looking to build up their provisioning buffers – potentially higher provisioning by RM150 million to RM200 million (or 15-20bps in credit costs) or in a worst case scenario RM300 million (25bps in credit costs).
“As positive macro-economic variables are expected for 2021, we anticipate lower provisioning coupled with better credit recoveries; hence, a much lower credit charge for FY21.”