OPR hike could bump up banks' earnings by 3% this year: Research houses

PETALING JAYA: Banks should expect some short-term boost to their margins following the hike in Bank Negara Malaysia’s Overnight Policy Rate (OPR) to 3.25% last Thursday, potentially increasing the banking sector’s earnings by about 3% this year, said analysts.
With the expected boost to the earnings of banks under their coverage, most of the research houses maintained their “positive” stance on the sector.
Analysts said they believe that banks with higher floating rate loans will benefit the most from the OPR hike, noting that Alliance Bank Malaysia Bhd (ABMB) will be a major beneficiary as its floating rate loans make up of 90.3% of its loan book.
“We estimate a rise of circa 3.9% to ABMB’s FY19 earnings from our previous forecast,” said MIDF Research.
For the regional banks, MIDF Research said it estimates Maybank and CIMB earnings will be lifted by 0.8%, due to the fact that their loan exposures are more diversified, with domestic loans comprising 58.1% and 57.0% respectively of their total loan books.
PublicInvest Research said RHB Bank should also benefit given its 82.5% variable-based loan portfolio, while Affin Bank is the least likely beneficiary as it has the largest proportion of fixed rate loans.
For sector exposure, it favours AMMB Holdings and CIMB.
PublicInvest noted that banks will most likely revise their lending and saving rates, with 25 to 27 bps seen on the assets (loans) and 22 to 23 bps on the liabilities (savings), as was similarly adjusted in previous rounds.
Nevertheless, HLIB Research said it believes that the timing gap between repricing of loans and deposits will only result in uplift to net interest margin (NIM) temporarily before it normalises due to competition and repricing impact.
“We expect the 25 bps hike in the OPR to boost sector earnings by 2-3%, whilst we expect a potential up to 2.5% uplift to bottom line for ABMB, and 2.1% for RHB and CIMB respectively.”
Meanwhile, MIDF Research said it expects the benchmark rate increase could possibly slow down loan growth this year, either from lower demand for loans or higher loan rejection rate.
However, the research house believes that the loan pipeline will continue to be robust in the first half of the year, driven by solid demand for borrowing and lending of mortgage loans despite the higher OPR and subsequent base rate hike.
“Our property analyst expects that there will be a negative impact to property demand in the short term but will subsequently normalise in two to three months time.”
MIDF Research maintained loan growth expectations of 6% year-on-year for 2018, while PublicInvest, which expects minimal impact on loan growth from the increase, forecasts growth of between 5% and 6%.
Malayan Banking Bhd announced today that will raise its base rate (BR) and base lending rate (BLR) by 25 basis points effective tomorrow, while fixed deposit rates will be revised upwards by between 20 and 25 basis points.
It is the second bank, after CIMB Bank, to announce the change after Bank Negara raised the OPR during its monetary policy committee meeting last Thursday. CIMB Bank and CIMB Islamic Bank will increase their BR and fixed deposit board rates by 0.25% effective Feb 2, the group said last Thursday.