KUALA LUMPUR: Leading brokerages expect a 25 basis points cut in the overnight policy rate (OPR) to have a short-term impact on banks’ net-interest-margin (NIM), but it will normalise after three to six months.
They have also mixed views over the banking sector after Bank Negara Malaysia reduced the overnight policy rate (OPR) by a 25 basis points to 3% yesterday.
Affin Hwang Capital has maintained a “neutral” call on the sector, noting the rate cut is expected to support overall domestic growth in 2019 and affect NIM in the first three to six months.
Its equity research, associate director, Tan Ei Leen in a note said the OPR cut would have downward pressure on NIM, given the immediate repricing effects on existing variable rate loans and for new loans.
“Over the next six to 12 months, NIM pressure may gradually ease as the repricing impact of deposit rates take effect,” she added.
Maybank IB Research, which has also maintained a “neutral” stance, noted the rate cut was neutral to marginally negative on banks’ earnings, that could be impacted by between 2 and 3%.
Touching on loan growth, Maybank IB Research banking analyst Desmond Ch’ng said the impact was likely to be marginal, especially for banks that had raised their base rates this year.
“Loan application trends point to moderating loan growth in the coming months, while loan applications contracted 8.5% in March, this being the 5th consecutive month of contraction,” he added.
Meanwhile, AmInvestment Bank has retained an “overweight” call on the banking sector.
Its analyst Kelvin Ong said the OPR cut would have minimal impact on banks’ earnings of 0.5–3%, while NIM is expected to be impacted by 1-4 basis points.
“The impact of any OPR change will be short term, estimated one to two quarters, as the repricing of deposits will eventually catch up with the change in lending rates,” he noted.