Short term negativity for banks from OPR cut
KUALA LUMPUR: Banks are expected to face temporary shortcomings following Bank Negara Malaysia (BNM) lowering the Overnight Policy Rate (OPR) by 25 basis points to three per cent, marking its first rate decrease since July 2016.
The development is negative in the short-term to Malaysian banks as net interest margins (NIMs) will compress following the almost immediate downwards repricing of floating-rate loans and lag in the repricing of fixed rate deposits (FD).
AmInvestment Bank Bhd (AmInvestment Bank) yesterday anticipated banks’ quarterly NIMs to normalise after three to six months from the repricing of deposits.
“The 25bps reduction in the benchmark rate will have minimal impact on banks’ earnings of 0.5 to three per cents while NIMs will be impacted by one to four basis points,” it explained.
“The impact of any OPR change will be short term -- estimated one or two quarters -- as the repricing of deposits will eventually catch up with the changes in lending rates.
“In any case, valuations of all banks will soon be rolled over to FY20 after the completion of the upcoming results review in May 2019. Hence, the rate cut will not significantly impact valuations of banks negatively.”
Banks with recent hikes to base rate (BR) and base financing rate (BFR) are likely to be able to partially mitigate the impact of the rate cut, AmInvestment Bank added.
Of late, several banks have raised their base rate/base financing rate upwards to offset the pressure from the rise in their funding cost.
For example, RHB Bank and Hong Leong Bank raised their BRs by 10 basis points in April and January 2019 respectively, while CIMB and BIMB increased their rates by 10 and 13 basis points in December and November 2018 respectively.