Written by Loong Tse Min & Daniel Khoo
Monday, 17 May 2010 10:54
KUALA LUMPUR: Banks have started to raise interest rates after Bank Negara Malaysia (BNM) raised the overnight policy rate (OPR) by 25 basis points (bps) and big capitalised laggards could be the unexpected beneficiaries, analysts said.
Banks which were considered fully valued and less exciting due to their smaller share of the investment banking market, will now look attractive with an expected growth in net interest margins (NIM) of 10bps.
HwangDBS Vickers Research said other banks, which were laggards, would also benefit include Malayan Banking Bhd and RHB Capital Bhd. It said these banks would also benefit as proxies to economic growth after the first-quarter gross domestic product (GDP) grew at a sizzling 10.1%.
Last Thursday, BNM raised the OPR by 25bps to 2.5%, the second rate increase since March 4 and this has prompted several banks to hike their rates, effective this week.
Last Friday, Malayan Banking Bhd said it would revise upwards its deposit and base lending rate (BLR) from tomorrow with 25bps each. Maybank Islamic Bhd’s base financing rate (BFR) will similarly be increased by 25bps to 6.05%.
Other banks which are raising their rates are CIMB Bank, CIMB Islamic Bank and Bank Islam Malaysia Bhd.
HwangDBS said the OPR hike was positive for most banks as BLR-based loans tend to be re-priced within a week of a rate hike, while deposit rates take longer to adjust due to the various time buckets.
“Our sensitivity analysis shows that every 25bps hike in OPR would raise lending yields by 17bps and increase cost of funds by 7bps, thus widening NIM by 10bps and boosting earnings by 6.5%, on average,” it said.
HwangDBS said Maybank was a good proxy to the higher GDP and OPR hike expectations. It expects Maybank’s loan portfolio to expand 12%-15% from 2010 to 2012 compared with the industry average of 8% to 9%.
“Maybank and RHBCap are high conviction picks and we have buy call and target prices of RM9.10 and RM7.30, respectively,” it said.
The research house said the Alliance Financial Group, with 84% variable rate loans in its portfolio, would be the biggest winner while AMMB Holdings Bhd would be least affected due to its high proportion of fixed rate loans (57%).
AmBank Group’s chief financial officer and deputy group managing director Ashok Ramamurthy said there may be potential for RM15 million to RM20 million of revenue in the next 12 months which would be lost through “margin compression” due to the rising interest rate environment — which would make borrowing costs more expensive.
“Most banks around the world try to borrow short and lend long. And when they do that in a rising interest rate environment, there will be margin compressions. Margin compressions will be capped at RM50 million, 1.5% of our current revenues; but our actual exposure is much smaller, about one third of that,” Ashok said.
“So when you talk about our earnings guidance with profit growth of 16%-20% next year, that is after taking into account any potential impact from rising interest rates — that’s the net growth,” he added.
Maybank’s president and CEO Datuk Seri Abdul Wahid Omar said with inflation expected to rise to 2.3%, and with OPR increasing to 2.5%, the country was now experiencing positive real interest rates (after deducting inflation from interest rate figures).
He said interest rates were currently “not too high nor too low” and that it was accommodative and conducive for business and growth in the economy.
On the possibility of more OPR hikes, HwangDBS expects the rate to rise by another 50bps to 3% by the fourth quarter.
However, CIMB head of economics research Lee Heng Guie said BNM was neutral on the next rate move.
“Based on BNM’s policy statement, it is quite neutral, given the continued uncertainty of external factrors such as Greece’s sovereign debt crisis. We do expect rate change to move at a measured pace,” said Lee.
AmResearch senior economist Manokaran Mottian said the 25bps hike was a preemptive move by BNM. The central bank’s 25bps hike in March had been vindicated by the strong first-quarter GDP data.
Meanwhile, RHB Banking Group will raise the BLR for RHB Bank Bhd and the BFR for RHB Islamic from 5.8% to 6.05% from Wednesday. The new fixed deposit rates will be
- 2.5% (for one to five months, previously 2.25% for one to 11 months),
- 2.7% (six to 11 months),
- 3% for 12 months (from 2.6%) and
- 3.1% (13 to 35 months).
This article appeared in The Edge Financial Daily, May 17, 2010.
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