KUALA LUMPUR: The relaxation of regulations will soften the ensuing economic shock from Covid-19, but would also increase risks for banks, said Moody’s Investors Service.
In a research note today, Moody’s said on March 25, Bank Negara Malaysia (BNM) announced a six-month debt moratorium for borrowers in the retail and small and medium-sized enterprise (SME) segments to help them manage the liquidity crunch from disruptions caused by the coronavirus outbreak.
“The debt moratorium will soften the near-term credit-negative impact on the banks’ asset quality. But, it also prevents banks from taking early restructuring or recovery action on specific borrowers.
“This could lead to higher credit losses after the moratorium is lifted. We expect an increase in the banks’ impaired loans after the moratorium ends, especially if the coronavirus outbreak is prolonged and continues to disrupt domestic economic activity,” it said.
Moody’s also noted that before the automatic moratorium, banks were already offering debt moratoriums to borrowers on a case-by-case basis, and over 70% of banking loans as of Dec 31, 2019 falls under the moratorium.
Among the banks it rated, Public Bank Bhd (A3 stable, a3) and Hong Leong Bank Bhd (A3 stable, a3) have the highest proportion of loans which qualifies for the moratorium because these banks focus on the retail and SME segments, it said.
Moody’s said BNM is also encouraging banks to lend by temporarily lowering the regulatory requirements on liquidity and capital, in line with similar measures undertaken by the European Central Bank in March 2020.
It said that banks can now utilise the 2.5% capital conservation buffer and regulatory reserve, and operate below the minimum 100% liquidity coverage ratio until Dec 31, 2020.
“The minimum net stable funding ratio will also be lowered to 80% from 100% when it is implemented in July 2020,” it said.
However, these regulatory relaxations could also increase risks for bank creditors, added Moody’s. – Bernama
