KUALA LUMPUR (Nov 14): CGS-CIMB Securities has downgraded Bank Islam Malaysia Bhd at RM2.52 with a lower target price (TP) of RM2.74 (from RM3.23) and said the positive impact from robust loan growth and OPR hikes would be diluted by the higher cost of funds amid deposit competition.

In a note on Nov 11, the research house said that under Bank Islam’s deposit campaign of Term Deposit Tawarruq-i, the bank is offering higher deposit rates of between 4% (for six-month tenor) and 4.4% (for 18-month tenor), compared to the normal fixed deposit rates of between 1.85% and 2.85% offered by the major banks (for tenors from one month to 12 months).

The research house said the bank has to offer attractive deposit rates to fund its strong loan growth.  

“We cut our FY2022-2024 EPS forecasts by 1-15% as we raise our projected FY2022-2024 income attributable to depositors (akin to interest expense for conventional banks) by 1-11% to reflect the higher cost of funds.

“This brings down our DDM-based TP for Bank Islam from RM3.23 to RM2.74 despite the roll-over of the TP to end-2023,” it said.

CGS-CIMB has downgraded its rating for Bank Islam from an "add" to a "hold" on concerns over a potential rise in funding costs arising from deposit competition, which could materially dilute the positive impact from OPR hikes.

“On the flip side, we are positive on its expectations of a robust loan growth of above-8% in FY2022, which would be one of the strongest in the sector.

“The stock is supported by a dividend yield of 4.3% for FY2022. We prefer RHB Bank Bhd for exposure to the Malaysian financial services sector,” it said.