PETALING JAYA: The challenging business environment will be
a drag on the non-residential property loan of local banks next year.
TA Securities said in a report that persistently weak
commodity prices will continue to put a strain on cash flows and the
businesses’ repayment capabilities.
“We believe the oil and gas (O&G) segment may also not
be out of the woods on the back of extensive capital expenditure and operating
expenditure cuts.”
The research house noted that Petroliam National Bhd’s (PETRONAS)
four-year plan to reduce expenditures by RM50bil over the next four years from
2016 would include the revision and negotiation of contracts.
It said this would comprise risk-sharing contracts, enhanced
oil recovery and Petronas’ second floating liquefied natural gas (PFLNG 2).
“Supporting industries and companies will also be affected. Last week, Perisai
Capital defaulted on its debt repayment of its S$125mil (RM 377.3mil) 6.875%
medium-term notes,” said TA, which has maintained a “neutral” outlook for the
local banking industry.
It expects some default risk stemming from a glut in office
and retail spaces given the challenging environment.
The non-residential property segment accounts for more than
RM180bil or close to 15% of total loans in the system.
“Collateral values aside, the exposure exceeds the total
collective and individual allowances of some RM 18 bil accumulated by the banks, thus
far.”
TA Securities added that the total non-residential property loan
exposure makes up 8% and 90% of combined asset size and shareholders’ funds, of
the eight anchor banks in Malaysia.
“In comparison, overall exposure to the O&G segment
accounts for less than 5% (or around RM70bil) of total loans of the eight banks
under our portfolio.”
It said the industry remains well capitalized “to absorb any
shocks and losses” despite concerns over asset quality.
“Predicting less recoveries and a more strenuous year in
asset quality in 2017, we estimate total net credit charge for all the local
banks under our coverage to increase to 188.5 basis points from an estimated
184.8 basis points this year.
“Based on our sensitivity analysis, a 10 basis points increase
in net credit charge for all the banks under our coverage would shave the
sector’s net profit and average return on equity by 5% and 0.5% basis points
respectively.”
It said application for credit card loans has increased by
strong double-digit growth rates since 2015 with resilient asset quality.
“Application for personal loans has also accelerated
although we believe banks have recently started to tighten their credit stance
in that segment, resulting in four months of contraction between May 2016 and
August 2016.
“Drawing similarities to the downturn in 2007 and 2008, we
note that application for credit cards and personal loans also surged –
presumably to help alleviate strains on cash flow.”
