THE “strong perception” that the Government is prioritising banks over their borrowers has been confirmed, said DAP chairman and former finance minister Lim Guan Eng. 

This after Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz yesterday (Sept 17) assured that Bank Negara Malaysia (BNM’s) recent overnight policy rate (OPR) hike by 25 basis points to 2.5% does not “enrich banks” as they have to pay higher interest rates to depositors. 

“Many say the Government prioritises the banks (by increasing the OPR), but this is not decided by the Government and neither does the Government interfere in this matter,” Tengku Zafrul clarified. “This perspective should be corrected.” 

In a statement today, Lim said such a “defence” of the banking sector is not supported by the banks’ own share research houses on Sept 9, 2022. 

Lim noted that Hong Leong Investment Bank Bhd (HLIB Research) had said that banks typically gain from a rising interest rate environment and they are still net beneficiaries even with an increase to the OPR as the net interest margin (NIM) is anticipated to widen.  

The NIM is a measure of the difference between the interest income generated by banks and interest paid out to depositors. A wider NIM indicates higher earnings for banks.   

HLIB Research also estimated that every 25 basis point OPR hike would expand sector NIM by five to six basis points.   

This, in turn, would heighten earnings forecasts by 4-5% on a full-year basis (not taking into account potential market-to-market losses and higher defaults). 

Similarly, CGS-CIMB Research stated that the OPR increase is likely to benefit banks as their floating rate loans are larger than their fixed deposits, both of which are adjusted upwards when the OPR is increased.  

CGS-CIMB Research had also noted: “If we were to factor in OPR hikes in 2023, every additional 25 basis point hike would increase our net profit forecasts for banks by an estimated 2.1%.”  

“PublicInvest Research noted that all banks, in general, will benefit from a rising rate environment,” Lim added. “The only difference is not if the banks will record extra profits, but by how much? 

“Only the Government believes this” 

“Clearly, only the Government believes that the banks do not earn more profits from a rise in the OPR.” 

The Bagan MP said this was borne out by the fact that when the OPR was at 3% pre-COVID-19, the banking industry recorded healthy pre-tax profits of RM41.5 bil in 2019.  

He added that when the OPR was reduced to 1.75% by BNM during the COVID-19 pandemic, the banking industry still managed to record healthy pre-tax profits of RM28.5 bil in 2020 and RM33.7 bil in 2021 – despite also having to bear the cost of interest rate waivers and bank loan moratoriums for the lower income groups. 

“With the OPR increase slowly creeping back up to the pre-pandemic level of 3%, the banking industry possesses a profitable outlook,” Lim noted.  

“However, banks should not have all the optimism of a brighter future at the expense of their borrowers suffering from paying a higher interest rate.”  

The Government, he said, should protect the people and not the banks’ profits by demanding that banks share their good fortune following the rise in OPR. 

“For this reason, the Government should heed the requests from the bottom rung of individual borrowers and the business community, particularly small and medium enterprises (SMEs), for an interest rate waiver and bank loan moratorium for a period of three to six months,” Lim urged. 

He said the banking industry’s healthy profits can sustain the cost of an interest rate waiver and a bank loan moratorium to help the poor and SMEs by overcoming higher prices, the rapidly depreciating ringgit, severe labour shortage, bureaucratic red tapes, failed policy decision-making, “U-turns” and “poor governance”. – Sept 18, 2022  

https://focusmalaysia.my/banks-dont-benefit-from-higher-opr-thats-not-what-their-research-houses-said/