Minimal impact from ‘step-up’ end-financing scheme on banks

KUALA LUMPUR (Oct 24): The “step-up” end-financing scheme for the 1Malaysia People’s Housing (PR1MA) programme announced by the government in Budget 2017 is expected to have only minimal impact on the four banks involved, said analysts.

The banks — Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd, RHB Bank Bhd, and AMMB Holdings Bhd (AmBank) — are unlikely to see any significant change in loan growth, they added.

“As the scheme caters for the purchase of PR1MA homes, which have selling prices ranging from RM150,000 to RM300,000, I don’t see this being a game changer for the banks involved,” an analyst at MIDF Research said.

“In the same context, I don’t think there is a risk of this leading to non-performing loans being recognised by the banks on any potential defaults, as the scheme is a collaboration with the government,” he noted.

When presenting Budget 2017 in parliament last Friday, Prime Minister Datuk Seri Najib Razak said through the special scheme, financing will be easier and more accessible to buyers, with total loan of up to 90% to 100% of the value. Through the scheme, loan rejection rates are also said to be drastically reduced.

Aside from the government and the four local banks, other parties participating in the scheme are Bank Negara Malaysia and the Employees Provident Fund. The application process for this scheme will be implemented effective Jan 1, 2017.

One bank-backed analyst said the scheme is likely to result in total loans of RM8.55 billion, which is minimal compared to the total loan portfolio of the four banks that stood at RM988 billion as at the second quarter of 2016 (2Q16).

“The prime minister mentioned that more than 30,000 homes are to be built under PR1MA. Assuming a selling price of RM300,000 and a financing of 95% by the bank, this would result in a total of RM8.55 billion in loans, which is less than 1% of the total loan portfolio of the four banks as at 2Q16,” he said,

Banks, however, are expected to receive a boost from incentives granted to the small- and medium-sized enterprises (SMEs) in Budget 2017.

“Budget 2017 was filled with goodies for the SMEs, so I believe this would help to boost SME cash flows and hence put them in a better position to obtain financing and service the loans obtained from banks ... I think this would boost loan growth for the banking sector and reduce the risk of loan impairments,” said the bank-based analyst.

Last Friday, Maybank group president and chief executive officer (CEO) Datuk Abdul Farid Alias shared that the country’s largest banking group by assets will be allocating a facility of up to RM2 billion to end-finance PR1MA homebuyers eligible for this new scheme.

AmBank group CEO Datuk Sulaiman Mohd Tahir sees the house end-financing scheme benefiting households in the Middle 40% category, whose salary is between RM3,860 and RM8,319 per month, as well as the Bottom 40% category, whose salary bracket is RM3,855 and below.

“This scheme will help address first-time homebuyers in these income categories, who are currently experiencing difficulties to own affordable homes due to its limited supply,” he said in a statement last Friday.

This article first appeared in The Edge Financial Daily, on Oct 24, 2016. Subscribe to The Edge Financial Daily here.

budget2017