Banks see another 25bps cut in OPR before year end

This article first appeared in The Edge Financial Daily, on August 30, 2019.

Abdul Farid says BNM may decide on the cut during ‘one of the two MPC meetings’.

Tengku Zafrul says CIMB expects a compression of 1-2bps in NIM for FY19.

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KUALA LUMPUR: Two Malaysian banking giants, namely Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, are expecting another 25 basis points (bps) cut in the overnight policy rate (OPR) to 2.75% by Bank Negara Malaysia (BNM) by the end of the year, as headwinds in the global economy continue to rage on.

Maybank group president and chief executive officer (CEO) Datuk Abdul Farid Alias said the bank expects BNM to reduce the OPR after the 25bps cut to 3% in May as global economies take a cue from the US interest rate pattern.

“Many economies around the world are reacting to the US’ cut in interest rates. They are managing their monetary policies in relation to the state of the global economy.

“We anticipate that pursuant to cuts by other economies in the region, Malaysia will do the same,” he told the press conference yesterday in conjunction with the announcement of Maybank’s second-quarter financials.

Abdul Farid said BNM may decide on the rate cut in the OPR during “one of the two Monetary Policy Committee (MPC) meetings left for the year”.

A cut in the OPR will be a good move for the country, said Abdul Farid, as it will put more cash in borrowers’ hands, hence, a positive impact on private consumption.

However, Abdul Farid pointed out that Maybank’s net interest margin (NIM) will remain pressured due to lower loan yields after the OPR cut on May 7.

“We expect our NIM to remain relatively flat this year but we will continue to focus on income growth, manage our asset quality, as well as liquidity and capital position,” Abdul Farid said.

Meanwhile, he reveals that the bank does see weakness in the global economic environment, not just domestically, but also in Singapore and Indonesia.

Likewise, CIMB is expecting another rate cut this year, against the backdrop of escalating tensions between the US and China and its impact on the global economy.

“Yes, we are expecting a 25bps cut, though the impact on us will be marginal, depending on when in the year it happens. Obviously, the later it is, the smaller the impact … it will be negligible.

“We expect a compression of one to two basis points in NIM for FY19,” said CIMB group CEO Tengku Datuk Seri Zafrul Tengku Abdul Aziz at the bank’s first-half results media briefing yesterday.

Nonetheless, Tengku Zafrul said the group is expecting loan growth to remain resilient for the remainder of the year.

There are two MPC meetings scheduled for the remaining of the year on Sept 12 and Nov 5 respectively. The US Federal Reserve’s rate cut last month is taken as a strong indicator that interest rates will remain low moving forward. It is the first cut since December 2008.

Central banks around the world are cutting interest rates, with BNM reducing its OPR in May. The central banks of India, New Zealand, Thailand and the Philippines also announced rate cuts early this month.