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Malaysia: Unchanged OPR good for banks
PETALING JAYA: Bank Negara’s decision to keep the overnight policy rate (OPR) unchanged at 1.75% is positive for banks.
It would provide a reprieve for banks’ net interest margin (NIM) – a measure of the difference between interest paid and interest received. Banks are already facing pressure on the bottomline from the 125-basis-point (bps) cut seen this year and the modification loss following the six-month loan moratorium that ended in September.
For now, many economists do not believe there would be a further need to cut the OPR, which is already at a historic low, as the current level of monetary policy is deemed to be accommodative to support the economic recovery.
With a likely pause in OPR cuts, CGS-CIMB Research expects a revival in net interest income growth in 2021.
“We project the net interest income of Malaysian banks under our coverage to expand by 3.8% in 2021, compared to an expected 6.7% drop in 2020.
“This is because the OPR was reduced by 125bps in 2020, while we are not expecting any cuts in 2021, ” it said in a report yesterday.
With this, the research firm expects banks’ NIM to be stable (or slightly lower) in 2021, compared to the expected 10-12bps contraction in 2020.
CGS-CIMB has reaffirmed its overweight call on the banking sector, underpinned by the improved outlook for net interest income and a projected 23.4% drop in loan loss provisioning in 2021, which in turn will translate to better profitability for earnings.
It also deems banks’ valuations as attractive, as its calendar year 2021 forecast price to earnings of 10.1 times is below the five-year historical average of 12.7 times.
Analysts noted that loan growth for the banking system continued to be robust as at September, which analysts believe is the result of the earlier OPR cuts and the government’s Penjana stimulus.
However, this may moderate the post-loan moratorium as repayments restart, said MIDF Research.
It noted that while asset quality appeared stable, it remains a concern after September.
“We expect the gross impaired loan (GIL) ratio to spike up post-loan moratorium.
“While economic recovery is currently underway, we opine that it is too short of a time period for some businesses to regenerate the loss of income during the movement control order.
“This will be in tandem with our expectation of an increase in provisions, ” it said.
The GIL ratio as at September 2020 came in at 1.38% from 1.40% in the previous month. For context, this was still during the loan moratorium period.
The research firm pointed out that there was a lack of visibility on the impact of the ending of the loan moratorium and guidance from banks were sketchy.
“We maintain our neutral stance as we expect loan growth to moderate, and more importantly, the possibility of the deterioration of asset quality post-loan moratorium, ” it added.
Source: https://www.thestar.com.my/business/business-news/2020/11/05/unchanged-opr-good-for-banks