OPR recent cut seen bringing Malaysian banks’ net interest rate to further compress

KUALA LUMPUR 10 July - With the factoring of the fourth overnight policy rate (OPR) cut by Bank Negara Malaysia (BNM), net interest margin (NIM) of Malaysian banks is expected to further compress in the financial year 2020.

“As it stands, we already expect banks’ NIMs to compress by an average of in basis points this year and the rate cut is expected to add another three basis points to the compression, taking it to 12 basis points in 2020. 

“Nevertheless, we expect the bulk of deposits to fully reprice by year end and on the assumption of no further rate cuts, we expect NIMs to recover by five to six basis points in financial year 2021,” Maybank Investment Bank Research (Maybank IB) report asserted.

However, Malaysian banks are not heavily impacted by the country’s central bank OPR cut while the earnings forecasts remain unchanged.

Read : BNM confirmed reducing OPR up to 1.75%

While a surprise to them, the cut was within consensus.

“The 25 basis points OPR cut was within consensus but a surprise to us, given our in-house expectation was for rates to remain unchanged. 

“This takes the total OPR cut to 125 basis points this year and it is now at an all time low of 1.75%. Our Economics Team nevertheless expects a pause in the rate cuts for the rest of the year,” said Maybank IB.

Read : 25bps OPR cut but dovish pause next?

On an aggregate basis, 25 basis points of OPR cut would shave off another 3% to banks’ earnings, with a larger impact on Alliance Bank (-6% impacted to FYE3/21 net profit). 

“We estimate the aggregate impact to financial year 2021 net profit to be just -1%. 

“Given that the overall impact is negligible, we are maintaining our profit forecasts across the banks,” said Maybank IB.

With the recent rate cut,  Malaysia’s economy is also expected to see ‘dovish pause’ in the 1.75% OPR. - DagangNews.com