KUALA LUMPUR: Banks are still net beneficiaries following Bank Negara Malaysia’s move to increase the Overnight Policy Rate (OPR) by 25 basis points (bps) as the net interest margin (NIM) is anticipated to widen.
Hong Leong Investment Bank Bhd (HLIB Research) said in a note that banks typically gain from a rising interest rate environment.
“From our sensitivity analysis, we estimated that every 25bps OPR hike would expand sector net interest margin (NIM) by five to six bps, which in turn, bumps up earnings forecast by four to five per cent (on a full year basis, without taking into account of potential market-to-market losses and higher defaults).
“Alliance Bank Bhd and Bank Islam Malaysia Bhd (BIMB) would benefit most, while Affin Bank Bhd and Public Bank Bhd are poised to gain the least.
“Here we assumed a symmetrical 25bps rate increase for both the variable loans and non-current account saving account (CASA) deposits while all other factors were held constant,” it said.
The bank-backed research firm said that actual gains are likely to be lower than calculations for banks with sizable overseas businesses, like Malayan Banking Bhd and CIMB Group Bhd.
It estimated that every one per cent CASA ratio reversal would drag sector NIM by two basis points and earnings by one per cent, assuming a fixed deposit-CASA spread differential of 200bps.
“From our compilation, Alliance Bank and Maybank saw their CASA ratio escalate up the most (by 10-13 percentage points) compared to peers (by 7ppt) from the fourth quarter (Q4) of 19 to Q2 2022 while Affin Bank and BIMB experienced the least built-up (by 2-3ppt).
“However, if a full CASA reversion scenario plays out, it will only neutralise gains from a 75-bps OPR increase,” it said.
The research firm added that BNM had only raised OPR by 75bps versus a total 125bps reduction during the Covid-19 pandemic era, suggesting room for more rate hikes and a series of this month’s consecutive widening in NIM.
The firm maintained an ‘Overweight’ call on the sector as it viewed it positively.
HLIB Research also opined that the risk-reward profile is skewed to the upside, and the combination of robust profit growth and undemanding valuations will be the impetus driving performance.