An URUS programme

A positive move

URUS is positive for both borrowers and banks, in our view, in that financially impacted B50 borrowers will now have access to greater financial aid, while the modification loss impact to banks could be smaller
than initially estimated, because of the targeted nature of this assistance. We await further details but maintain a POSITIVE on the banking sector, with BUYs on AMMB, BIMB, RHB, Public Bank and HLFG.

Interest rate exemption and reduced instalment

The Prime Minister yesterday announced that a Financial Management and Resilience Programme (URUS) will be set up by the banking sector soon for affected borrowers in the B50 income group (i.e. those with a monthly household income of less than MYR5,880). URUS is formulated by the banking industry together with Bank Negara and the Credit Management Agency (AKPK). Eligible borrowers will be entitled to interest rate exemption on their loans for up to 3 months, and a reduction in instalment payment for up to 24 months which will include a reduction in interest rates.

Targeted assistance

Investors will recall that on 13 Sep, the Ministry of Finance had announced a blanket 3-month interest waiver across the entire B50 income group. URUS supersedes the earlier announcement, we believe, and the two key differences would be that a) URUS is targeted at financially impacted B50 borrowers who will likely have to apply for assistance and b) affected B50 borrowers would be entitled to greater assistance through not only the interest waiver but also lower instalment payments for up to 24 months.

Financial impact to banks could be smaller

Pending further details, our initial thoughts are that URUS is overall positive for both affected borrowers and banks. Financially impacted borrowers will benefit from greater financial assistance while the financial
impact to banks is likely to be smaller than initially estimated, given that it is a targeted assistance programme. Under the earlier blanket 3-month interest waiver, we had estimated an average 7% earnings impact to banks’ earnings from potential modification losses. The financial impact to banks under URUS is likely smaller, we think, but we await further clarification on the programme.