‘PR1MA scheme has minimal impact on banks’

Banking sector

Maintain neutral: On Tuesday, Perumahan Rakyat 1Malaysia (PR1MA) announced that the Special PR1MA End-Financing Scheme for first-time house buyers announced in Budget 2017 will benefit at least 15,000 buyers.

To recap, the government in Budget 2017 announced the introduction of the PR1MA end-financing scheme, easier financing coupled with lower rejection rates with a margin of financing of 90% to 100%. The scheme would be implemented effective Jan 1, 2017, until Dec 31, 2018, with the collaboration of the government, Bank Negara Malaysia, the Employees Provident Fund (EPF) as well as the four major banks, namely Maybank, CIMB, RHB and AmBank.

Additional details of the scheme include: i) step-up financing only or step-up financing with EPF Account 2 withdrawal options where for the first five years, only the interest needs to be paid, with the principal amounts kicking in only from year six onwards; ii) a higher interest fee for the new scheme of 4.75% versus the average conventional loan of 4.45%; and iii) PR1MA targets for 15,000 units to be sold in 2017.

The direct beneficiaries will be AMMB Holdings Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd (Maybank) and RHB Bank Bhd, encouraging them to lend more to the residential property segment which currently constitutes 23.5% of their combined loans based on the third quarter of calendar year 2016 (3QCY2016) figures.

However, we are neutral on the impact. As the target for 2017 involves 15,000 units only (assuming an average price of RM350,000 to RM400,000 per unit) at 95% financing, we estimate the banks will fork out between RM4.9 billion and RM5.7 billion in new loans or an extra 2.1% to 2.4% to the aggregate of their total outstanding loans. The impact on asset quality, on the other hand, is also expected to be benign. Assuming a 20% default rate, we estimate that the gross impaired loan ratio of the banks will increase by 10 basis points (bps) to 2.57% on average.

While details are not clear on how the targeted 15,000 units will be carved out among the four banks or who or how among them will get the bulk of the financing scheme, we believe that CIMB will be able to acquire the most. We see that CIMB’s exposure to the residential property segment is the highest among the banks, increasing by 13bps since 1QCY16, although its average lending yield was the highest in the industry at 5.16% in 3Q16 (versus the industry’s 4.55%), implying higher appetite for mortgage loans. Maybank’s exposure to the property segment has been trending downwards despite the easing of its lending rates implying lower appetite in this segment.

With minimal impact on the industry and pending the release of the banks’ quarterly results this month, we maintain our “market perform” calls for most of the banking stocks in our universe except for Affin Holdings Bhd (target price [TP]: RM2.20) for which we maintain an “underperform” rating, while CIMB (TP: RM5.27) is rated as “outperform”. — Kenanga Research, Feb 15

This article first appeared in The Edge Financial Daily, on Feb 16, 2017.

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