KUALA LUMPUR: BIMB Holdings Bhd expects to be temporarily hit by the cut in the Overnight Policy Rate (OPR) last week, but foresees a neutral impact in its full-year earnings for 2019, helped by the boost in its fee-based income.
BIMB is seen by analysts to be one of the most affected banks in a falling interest rate climate due to its high mix of variable rate loans.
Speaking to reporters at its AGM here today, BIMB and Bank Islam Malaysia Bhd CEO Mohd Muazzam Mohamed said any other bank would be in the same situation as BIMB following the OPR cut, but noted that the effect will be temporary.
“When the OPR is lowered, we have to lower our base rate and base financing rate, so our income will be lower. At the same time, we also lower our deposit rate. However, there is a timing difference. For savings accounts, we can reduce (the rate) immediately. For deposits, only when it mature. It’s only that temporary period when the income is affected,” he explained.
Bank Islam has lowered its base rate and base financing rate by 26bps following the OPR cut. The bank’s base rate has been reduced to 3.77% per annum from 4.03%, while its base financing rate has been reduced to 6.72% per annum compared with 6.98% earlier.
“At the same time, there is also other sources of income that we expect to be better this year, for example, our fee-based income for Bank Islam. Our fee-based income in the past has been lower compared to industry average and we’re pushing that up,” said Muazzam.
In terms of fee-based income, he said areas like wealth management and bancatakaful will help to negate the impact from the OPR cut.
Under its strategic plan for 2020-2021, fee-based activity is seen as one of its key thrusts and it is hopeful that Bank Islam’s subsidiary BIMB Investment Management Bhd will be one of the growth areas for the group.
“We’ve got good products. Put in good sales infrastructure and we can grow from there,” Muazzam said.
He added that Bank Islam is also looking at bigger contribution from its bancatakaful arrangement with sister company Syarikat Takaful Malaysia Keluarga Bhd.
“We’ve added more products and we’ve increased marketing and sales channels with them,” said Muazzam.
This year, BIMB is looking at maintaining its return on equity (ROE) before tax at 15%. It posted an ROE after tax of 15.4% in 2018.
Meanwhile, Muazzam expects Bank Islam’s financing growth to moderate slightly to 6%-7% from 8.5% in the previous year, in view of the challenging economy and its larger loan size of RM46 billion now.
“At that level, it’s still going to be above the industry average but not at double-digit as where we were two to three years ago.”