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Author: savemalaysia   |   Latest post: Mon, 1 Mar 2021, 7:15 PM

 

Bank Negara's OPR move a reprieve for banks, pushes stocks higher

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KUALA LUMPUR: Bank Negara Malaysia staying pat on its monetary settings in its first meeting of the year means a reprieve for the local banking sector and benign net interest margin (NIM).

Analysts said the sector was given a reprieve with the Overnight Policy Rate (OPR) being kept at 1.75 per cent during the central bank's Monetary Policy Committee (MPC) meeting on Wednesday.

The decision also saw shares of most banking stocks, which were in the doldrums before Bank Negara's announcement, traded higher yesterday.

This was led by Public Bank Bhd, which gained 1.13 per cent or 24 sen to RM21.56, followed by BIMB Holdings Bhd (up 1.71 per cent or seven sen to RM4.17) and AmBank Group (up 1.84 per cent or six sen to RM3.32). 

Bank Muamalat Malaysia Bhd economist Izuan Ahmad said Bank Negara's decision would spare the sector from the potential adverse impact on NIM by up to four basis points and lower net profit by up to 3.0 per cent (based on assumption of 25 basis points reduction in OPR.

"Nevertheless, going forward, there is still a possibility for the central bank to reduce the policy rate within the next few MPC meetings, as the uncertainties surrounding the targeted economic and financial recovery this year still prevail," Izuan told the New Straits Times.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said assuming there was no change in OPR in the first quarter, banks' NIM were expeced to stabilise.

"NIM are the key determining factors for banks earnings and the main driver for Bursa Malaysia's FBM KLCI whereby the banking sector accounted for more than 30 per cent of total index constituent. In that sense, FBM KLCI should be well supported in the immediate terms," he added.

"With no cuts to the OPR, it will provide a reprieve for banks' NIM this year," MIDF Research said.

The firm expects that any NIM compression would be benign this year compared to the pressure from the 125 basis points cuts last year and modification loss following the six-month automatic loan moratorium.

"Nevertheless, we opine should there have been any further OPR cut this year; the impact to banks' NIM will likely be muted (due to) minimal deposit competition," MIDF Research said in a report today.

CGS-CIMB Research is positive on the move as a cut would be detrimental to banks' net profit.

The firm maintained its "overweight" stance on banks "due to expectations of a better outlook for NIMs and lower loan loss provisioning exepected this year.

"We maintain our net profit growth forecast of 19 per cent for 2021, underpinned by a projected 30.2 per cent drop in 2021 loan loss provisioning (versus a spike of 112.3 per cent in 2020), and a turnaround in net interest income growth from a decline of 5.4 per cent in 2020 to an expansion of 4.7 per cent in 2021," it noted.

CGS-CIMB cautioned that "the risk of an OPR cut persists", with the possibility of a 25bps cut in the first half of 2021 should the Movement Control Order (MCO) 2.0 continue for a protracted period.

The firm estimates that a 25bps cut in the OPR would lower its projected 2021 net profit for banks by about 2.2 per cent.

"Hence, a 25bps OPR cut would lower our projected net profit growth for banks in 2021 from 19 per cent currently to 17.2 per cent," it added.

The next MPC meeting is set for March 4.

On a separate note, MIDF Research said the sector's loans growth had eased 3.8 per cent year-on-year last November from a 4.3 per cent growth y-o-y last October, but should pick up this year.

This was due to slower growth in business loans given full month of the Conditional MCO which might have caused some cautiousness from businesses.

Business loans grew 1.6 per cent y-o-y to RM795.9 billion from a growth of 2.4 per cent y-o-y to RM799.4 billion as at October 2020.

 

https://www.nst.com.my/business/2021/01/659607/bnms-stay-opr-2021s-first-mpc-meeting-pushed-bankings-stocks-higher

 

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