Thailand
Malaysia: Interest rate seen rising 25bps
PETALING JAYA: A 25 basis-point hike in the overnight policy rate (OPR) could be announced by Bank Negara’s monetary policy committee (MPC) today, say analysts from two research firms.
Chief economist at AmBank Group Anthony Dass said there was room for Bank Negara to raise rates by 25bps due to the stronger ringgit against the US dollar and the election factor.
He added that fundamental factors that allow for a rate hike were a prolonged period of negative interest rates, a pickup in the velocity of money reflecting stronger fundamentals, and healthy liquidity.
“Should there be a hike in January, it will have a temporary positive impact on banks’ net interest income (NII).
“Thus, the extent of benefits to earnings will depend on the respective banks’ percentage of floating rate loans, and the ratio of domestic to total loans as well as the timing of the rate hike relative to the banks’ financial year end.”
“Based on our simulation, a 25bp hike in OPR could raise our FY18-19 net profit forecasts by circa 4% (assuming full-year impact).
“This is based on the assumptions of a 25bp increase in lending rates and an average 22bp rise in fixed deposit rates following a 25bp hike in OPR.
“The impact is largely determined by the positive re-pricing gap between lending and deposit rates – the wider the gap, the larger the impact on banks’ earnings,” he said.
CIMB Research said its scenario analysis showed that Alliance Bank Bhd could be the biggest beneficiary of the rate hike.
“We estimate that a 25bp hike in OPR could raise its FY18-19F net profit by about 8%-9% (assuming full-year impact).
“This is underpinned by its high proportion of floating-rate loans, which at 89% of its total loans are the highest among local banks.
“RHB Bank Bhd is in second place with an estimated positive impact of circa 6% on its FY18-19F net profit,” it said.
CIMB Research does not expect a potential 25bp hike in OPR in 2018 to significantly impact banks’ loan growth and asset quality.
Hence, it will most likely maintain its 2018 forecasts of 4%-5% loan growth and 1.8% gross impaired loan (GIL) ratio (for end-2018F) if and when the 25bp OPR hike materialises.
The research house said despite the positive impact from the potential rate hike, it still rates banks as Neutral given (1) the tepid projected loan growth of only 4-5% for 2018, and (2) potential rise in loan loss provisioning following the adoption of MFRS 9 in 2018.
“The upside/downside risks to our call are a pick-up/slowdown in loan growth and expansion/contraction in margins. RHB Bank remains our top pick for the sector,” it said.
Source: https://www.thestar.com.my/business/business-news/2018/01/24/interest-rate-seen-rising-25bps/#rEpOJ8gYtKFiu4i3.99