‘OVERWEIGHT’ CALL ON BANKING SECTOR
Bank Negara move unlikely to be disruptive to local economy, says Kenanga Research
THE Overnight Policy Rate (OPR) hike to two per cent is expected to translate into earnings revisions of up to three per cent for domestic banks, said Kenanga Investment Bank Bhd (Kenanga Research) in a note yesterday.
“We believe that investors will react positively to the higher OPR, reaffirmed by the improved earnings prospects that can be seen with the further rate hikes to come.
“We believe that opportunities for capital gains are present.”
Kenanga Research said Bank Negara Malaysia’s decision had come sooner than expected and against its in-house expectations of two rate hikes in the second half of this year.
The tightening is likely to impede inflationary consequences from recent volatile commodity prices and supply chain disruptions.
“We do not believe that the rate hike will be disruptive to the local economy.
“Corporates have guided a 2.0 to 4.0 basis points increase in net interest margins, which appears true following our model updates.
“While this translates to earnings increase of less than five per cent, we believe that the move by Bank Negara will only strengthen sentiment as it could be indicative of further hikes to come, contemplative of the United States Federal Reserve’s hawkish stance.”
Kenanga Research has maintained its “overweight” call on the banking sector, with its top picks being RHB Bank Bhd and Hong Leong Bank Bhd.
It said RHB Bank’s successful bid with Boost Holdings for a digital banking licence could stir greater interest once details of its strategic plans were made available.
“RHB Bank will also likely be the quickest beneficiary of the OPR hike, given its higher floating rate financing mix.
“Hong Leong can be seen as a contrarian pick. While it is expected to benefit from a greater demand for loans like its peers, its better-than-pre-Covid-19 pandemic gross impaired loan ratios indicate high asset quality safety in the event of any unforeseen worsening of the pandemic or global macros that may affect overall asset quality prospects,” it added.