M’sia to lose RM12b in revenue if price drops to US$20
PETALING JAYA: The plunge in crude oil prices is likely to cause the government to lose billions of ringgit in oil revenue that could see the fiscal deficit balloon under current spending plans.
At the price of US$48 per barrel for oil, Malaysia stands to have RM4.5bil shaved off from its oil revenue. And should the prices plummet to the range of US$20 to US$25 per barrel, the additional losses would be to the tune of between RM11.1bil and RM12.6bil.
Brent crude oil was at the range of US$36 per barrel as at press time.
CGS-CIMB Research has revised its oil price assumptions from US$63 per barrel to US$48 and said that the net impact on fiscal deficit was RM2.7bil or 0.2% of the gross domestic product (GDP).
Coupled with the direct fiscal injection by the government to mitigate the coronavirus disease (Covid-19) impact, the fiscal deficit is expected to be raised by another RM3.5bil, which on the whole, could widen to 3.6% of the GDP.
AmBank Research said possibilities that oil prices would drop to a low of US$20 to US$25 cannot be ruled out and such a situation would add strong upward pressure on the fiscal deficit, surpassing 4%.
CGS-CIMB is of the opinion that implications are generally negative for the oil and gas (O&G) sector in Malaysia. Citing the example of the oil price downturn in 2014 to 2016, it said Petroliam Nasional Bhd or Petronas had cut its operating cost at the expense of its suppliers and contractors.
A spillover effect would be on banks that are exposed to the O&G sector, which may potentially see higher provisions required due to the heightened risk of impaired loans, leading to reduced profits.
A broker said bank earnings could take a beating this year, as the economy is expected to remain gloomy.
“We’re just heading towards the end of the first quarter and there seems to be no end to the tunnel just yet.
“There’s the effect of the protracting trade war, the worsening Covid-19, our unstable political situation and then comes the oil price war that has dragged us down further, ” he said.
Maybank Investment Bank Research in a hypothetical exercise conducted a sensitivity analysis with a 100% loan loss coverage (LLC) against O&G impaired loans and found that additional provision amounted to an average of 5.8% of the estimated financial year 2020 (FY20)/FY21 net profit of the seven banks in its coverage.
CIMB Bank in this assumption has the highest gross impaired loan (GIL) ratio at 30% and its additional provisions of about RM765mil would come to 15.2% of its net profit.
RHB Bank Bhd’s GIL ratio in this situation would be 23%, with provisions amounting to 9.7% of its net profit.
Alliance Bank Malaysia Bhd, AmBank, HONG LEONG BANK BHD and PUBLIC BANK BHD would see negligible impact on their net profits.
The research house said the risk of impairment on performing O&G loans may result in a bump-up in credit costs if oil prices remain suppressed.
It has recommended a buy on RHB Bank, saying that the group’s LLC against O&G GILs was more than 70%. It also estimated that inclusive of Stage 1 & Stage 2 O&G loans, the provision is more than 100%.
AmBank Group chief economist Anthony Dass said the banking sector is unlikely to be stretched significantly from the fall in oil prices and the weakening ringgit.
He attributed it to the healthy fundamentals of banks, reflected by strong capitalisation, steady loans and deposit growth, ample liquidity and low non-performing loan (NPL) levels.
“However, banks with exposure to borrowers affected by the weakening oil prices as well as the ringgit may experience some deterioration in loan quality.
“But it is unlikely to spark fears of runaway NPLs, as banks have strong capitalisation and earnings.
“Any worry would emerge if the banks have not been proactively reviewing their exposure to the affected industries. Such banks risk deterioration in asset quality and will spike provisions that will have a direct impact on their bottom lines, ” he said.
Source: TheStar