PETALING JAYA: The hike in the overnight policy rate (OPR) hike by 25 basis points to 3% by Bank Negara will help alleviate pressure off net interest margins (NIMs) for the banking sector in the second quarter of 2023, analysts say.
The latest OPR hike will benefit banks’ NIM as majority of the domestic banking industry’s loans are floating-rate facilities, which will reprice faster than deposits.
“The extent of NIM uplift, however, will be partly moderated by keener deposit competition as well as continued contraction in current and savings account (CASA) growth.
“This is as some depositors switch back to term deposits amid higher interest rates,” said Wong Yin Ching, RAM Rating Services Bhd’s co-head of Financial Institution Ratings.
She added despite the latest OPR hike, overall bank NIMs will likely see some narrowing in 2023.
This is given the full-year effect of deposit upward repricing from the four OPR increases last year.
“The higher borrowing costs may also affect the repayment capabilities of certain weak borrowers although RAM expects the asset quality of banks to remain intact,” she said.
Hong Leong Investment Bank (HLIB) Research, said the hike will help offset negatives like deposits repricing combined with CASA being used and alternatives to fixed deposits.
The research house anticipates the rate of NIM slippage will be the high in the first quarter of this year and significantly slow down from that point on.
According to HLIB Research’s sensitivity analysis, every 25 bps increase in the OPR may widen the sector’s NIM by five to six basis points, which would increase earnings forecasts on a full-year basis by 3% to 4%.
This is without accounting for probable market-to-market losses and increased default rates.
HLIB Research said banks like Alliance Bank Malaysia Bhd
and Bank Islam Malaysia Bhd would most likely benefit from the recent hike, while Affin Bank Bhd and Public Bank Bhd are poised to gain the least.
The hike has however led HLIB Research to remain bullish on the sector spurred by undemanding valuations, appealing dividend yield and the undervalued ringgit luring foreign investors back to the Malaysian market.
Kenanga Research also expects the rise in interest rates could temporarily halt interest margin pressures from the increasingly competitive deposits space in the sector.
“The translated impact from the OPR hike is said to still be within previous corporate guidance of one to three basis points NIM expansion with a marginal revision to earnings of more than 2% at most,” Kenanga Research added.
Kenanga Research maintained its “overweight” call on the banking sector by backing Public Bank and RHB Bank Bhd as its top pick.
HLIB Research’s top picks for the finance sector are Public Bank, RHB Bank, AMMB Holdings Bhd, Alliance Bank and Bank Islam Bhd.
