PETALING JAYA: Analysts believe that the central bank is likely to raise the overnight policy rate (OPR) by 25 basis points (bps) to 3.25% this week when its Monetary Policy Committee (MPC) meets on July 9-10. "We see the central bank's comments at the last MPC meeting (in early May) coupled with the stronger-than-expected first quarter gross domestic product growth as signals that an interest rate hike is imminent," RHB Research Institute analyst David Chong said in his report yesterday. The last time the OPR was raised was by 25bps to 3% in May 2011. Chong does not expect a 25bps hike to impact banks loan growth or asset quality adversely, mainly because interest rate levels are still low. He suggested that a rate hike would be mildly positive to banks' earnings and could help provide some relief to net interest margin (NIM) pressure in the near term after the OPR hike takes place. Following that, NIMs are expected to trend down due to the repricing of deposits. Ongoing competitive pressures, especially on deposits, may mute the impact of a rate hike further. "Generally, a rate hike tends to be positive for the banks as interest rate-sensitive assets are re-priced quicker than liabilities," he said. Chong explained that banks with higher variable rate loans to total loans would benefit more given that a higher proportion of assets would be re-priced faster. Another determining factor would be the percentage of current account and savings account (CASA) to total deposits (ie CASA ratio). "Banks with a higher CASA ratio would benefit more as CASA rates, unlike fixed deposit rates, are not expected to be adjusted by the same magnitude as the hike in OPR," he said. Chong however noted that while banks tend to be beneficiaries when interest rates are on the rise, analysis suggests that the impact would not be too significant. A 25bps OPR hike suggest a full-year enhancement of up to 1.7% for net interest income and an uplift of up to 4bps to NIM for the individual banks under RHB Research's coverage. "In terms of bottomline, we estimate an enhancement of up to 2.4%, which is not too significant," he added. Chong said Alliance Financial Group (AFG) and Maybank appear to be the biggest beneficiaries of an OPR hike thanks to their high proportion of variable rate loans and high CASA ratios. BIMB, meanwhile, appears to be most negatively affected by the changes, given that it has more interest-rate sensitive assets in the longer-term maturity bucket, as compared to interest-rate sensitive liabilities. RHB Research maintained its neutral call on the banking sector given the lack of catalysts and subdued earnings outlook. Meanwhile, Maybank Investment Bank (IB) analyst Desmond Ch'ng is expecting the central bank to raise the OPR this week and up to 50 bps in total by the end of this year. 'Our forecasts already assume a 50bps rate hike in 2014 (full-year impact in 2015) and as a result, we are looking at a marginal 4bps aggregate NIM improvement in 2015 versus a 7bps contraction in 2014," he said. Historically, Ch'ng noted, an increase in OPR has often generated a positive response for CIMB, Hong Leong Bank, Maybank and RHB Capital's share prices over a two week period, and less so for Public Bank, AMMB. However, AFG's fundamentals have shifted in recent years and it is now the most leveraged to a hike in rates, followed by BIMB.