HLIB Research noted that fixed deposit competition appeared benign with no significant board rate hikes observed.
PETALING JAYA: Local banks are positioning for a potential overnight policy rate (OPR) cut in the second half of the year by paring back deposit rates and recalibrating fixed deposit (FD) strategies.
In April, total deposits grew 3.8% year-on-year (y-o-y) and 0.2% month-on-month (m-o-m), supported by current account savings account (CASA) growth of 4.5% and FD growth of 2.5%.
The CASA ratio held relatively stable at 28.5%, slightly lower than 28.6% in March 2025 but up from 28.4% a year ago.
Meanwhile, the industry’s loan-to-deposit ratio (LDR) eased to 87.4%, from 87.6% in the previous month and 86.3% in April 2024.
Hong Leong Investment Bank (HLIB) Research noted that fixed deposit competition appeared benign with no significant board rate hikes observed.
However, it flagged some cuts of between five and 15 basis points (bps) in promotional and conventional deposit rates across May.
“This is seen as a proactive step taken by banks to manage net interest margin (NIM) in view of the potential OPR cut, and possibly as a sign of easing competition,” it noted in a report yesterday.
Similarly, Kenanga Research highlighted that most banks anticipate one OPR cut in 2H25, prompting “more concerted efforts to drive shorter-term fixed deposit products.”
It pointed out that fixed deposits with a tenure of fewer than six months made up 52% of total deposits in April 2025, compared with 51% in March 2025, while deposits with tenures of more than one year declined from 3% to 2%.
“This may likely persist as banks seek to further rationalise their funding cost amid the decline in asset yields,” it said.
“However, as the recent reduction in statutory reserve requirement (SRR) looks to provide some relief to funding cost (up to two bps improvement to NIMs), we believe banks can afford to not overly raise deposit rates to accumulate capital in the near term.”
Last month, Bank Negara kept the OPR at 3% but lowered the SRR ratio by 100 bps to 1%, effective May 16 – the first SRR reduction since March 2020, at the start of the Covid-19 pandemic.
CGS International (CGSI) Research pointed out that over the first four months of 2025, deposits increased by RM30.8bil, outpacing loan growth of RM23.2bil, “reflecting improvements in the liquidity of the banking industry, in our view.”
“We believe the cut in the SRR by Bank Negara would release about RM19bil into the banking system, and would further enhance banks’ liquidity,” the research house added.
Meanwhile, in April 2025, total loans grew by 5.1% y-o-y and 1.0% year-to-date, a marginal slowdown from 5.2% y-o-y in March.
The moderation was mainly attibuted to the slightly softer business loan growth, which eased to 4.6% y-o-y versus 4.8% in March. On the other hand, household loans held firm at 6% y-o-y for a second straight month.
The industry’s gross impaired loans ratio inched up to 1.43% in April from 1.42% in March, but improved from 1.63% a year ago, while loan loss coverage held relatively steady at 91%.
CGSI Research viewed the slowdown in loan growth as “not overly concerning,” noting that the expansion remains within its 2025 loan growth forecast of between 4.5% and 5.5%.
