KUALA LUMPUR (July 30): Shares of bank counters fell today, led by a decline in Public Bank Bhd as investors digested the targeted loan moratorium extension announced by Prime Minister Tan Sri Muhyiddin Yassin yesterday.

At the time of writing, Public Bank shares fell 26 sen or 1.48% to RM17.28 to emerge as the third biggest decliner on Bursa Malaysia.

Malayan Banking Bhd (Maybank) fell 2 sen or 0.26% to RM7.73, CIMB Group Holdings Bhd fell 4 sen or 1.12% to RM3.56, while BIMB Holdings Bhd fell 7 sen or 1.99% to RM3.46.

Meanwhile, Hong Leong Bank Bhd rose 6 sen or 0.4% to RM15.06, while Alliance Bank Malaysia Bhd rose 2 sen or 0.93% to RM2.16.

In a note today, AmBank Research said it is neutral on the development. Banks will need to set aside additional provisioning for the loans for the targeted assistance (management overlay), it said.

“Provisions from the management overlay, coupled with that for macro overlay (changes in macro variables), are anticipated to cause banks' credit costs to remain elevated,” it said, while maintaining "buy" on Maybank (target price [TP]: RM8.40) and RHB (TP: RM6).

Separately, CGS-CIMB said it is neutral on the moratorium extension, which comprises a three-month moratorium for borrowers who lost their jobs, as well as restructuring for those whose income are affected by the Covid-19 pandemic.

“As the loan moratorium from Oct 1 onwards is targeted on borrowers that face financial difficulties, banks will start to regenerate the income from most of their consumer and SME loans in 4Q20F. This should strengthen their cash flows," it said.

The targeted loan moratorium is expected to benefit 3 million individual and SME borrowers, as opposed to over 7.7 million individuals and 243,000 SMEs who benefited from the six-month blanket moratorium from March until this September.

“We deem banks’ valuations to be reasonable as its FY21 price-earnings forecast ratio of 11 times is below the five-year average of 12.5 times.

“However, we remain neutral on banks as we envisage banks’ 2Q20F to be weaker on-quarter due to the modification loss and potentially higher loan loss provisioning (LLP). Our picks for the sector are Public Bank (TP: RM19.13), RHB Bank (TP: RM5.60) and AMMB (TP: RM3.60),” said CGS-CIMB.