KUALA LUMPUR (May 12): Bank Negara Malaysia's (BNM) 25 basis points (bps) overnight policy rate (OPR) hike is likely to have a positive impact on bank earnings, said analysts.
Hong Leong Investment Bank Research analyst Chan Jit Hoong said banks are seen to benefit from the OPR hike and net interest margin (NIM) is expected to widen.
“We estimated every 25bps OPR hike would bump up sector NIM by five to six bps and profit forecast by 4% to 5%,” he said.
According to him, the big gainers are Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd (BIMB), while the small gainers are Affin Bank Bhd and Public Bank Bhd.
“We believe the sector’s risk-reward profile is skewed to the upside as valuations are undemanding and we are only at the cusp of an OPR hike upcycle with economic recovery, which benefits banks.
"As such, we remain bullish and employ a rather broad stock buying strategy in the first half of 2022,” he said.
Thus, he retained an overweight rating on the banking sector and has "buy" calls on Malayan Banking Bhd (Maybank), Public Bank, RHB Banking Group, BIMB, and Affin Bank.
Meanwhile, Maybank Investment Bank analyst Desmond Ch’ng said in a note that he estimated that every 25bps hike in the OPR would raise earnings for banks by 1% to 3%.
Key beneficiaries, in his view, would be Alliance Bank, RHB, AMMB Holdings Bhd and Public Bank, which could see an uplift in earnings of about 2.6% each from such a move.
“At the lower end of the spectrum would be Hong Leong Bank Bhd, we believe, with an estimated 1% enhancement to earnings,” he added while maintaining positive on the sector.
He nevertheless maintained his earnings forecasts for now, given that a more immediate concern would be the prospect of marked-to-market losses from rising bond yields.
Affin Hwang Investment Bank analyst Tan Ei Leen also said in a note that based on her simulation of a 25bps hike of the OPR, the Malaysian banking sector on an aggregate basis is expected to benefit by around 2.5% to 2.7% at the net profit level, while sector NIM is expected to be enhanced by circa 2.5bps to 3bps.
In her view, Alliance Bank, Maybank, RHB and CIMB Group Holdings Bhd are the biggest beneficiaries.
“We reaffirm our overweight stance on the banking sector. With an earlier rate hike, there will be a minor enhancement to the profit forecasts (<1%) in our stock universe, due to the timing difference (previously, we priced-in a 50bps rate hike impact in our second half of 2022 earnings),” she said.
She also expects the sector core net profit to expand 7.5%/14%/4.5% for 2022/2023/2024, driven by steady expansion in fund-based income (with the impact of another 25bps rate hike priced in from the second half of 2022 onwards) and lower impairment allowances.
Likewise, MIDF Research said in a note that banking NIMs are expected to benefit from the earlier-than-expected OPR hike in varying degrees.
According to the research house, the underlying factors include proportion of local, floating interest-rate loans as well as percentage of net income derived from non-interest income (NII).
For MIDF, BIMB and Affin Bank are set to be the core beneficiaries of the OPR hike.
The research house is not expecting any notable decline in loan growth in the immediate future, given still-robust leading indicators (loan application growth in March 2022: +4.6% year on year, +47.8% month on month) and the strong recovering trend of both consumer and corporate demand.
MIDF also noted banking players’ earnings and dividend offerings are set to benefit from higher NIMs.
Any potential negative impact on loan demand and current account saving accounts (CASA) growth is expected to be minimal, it added.
Aside from that, it is still optimistic on banking industry players’ prospects which would be underpinned by lower credit costs in 2022, potential credit writebacks in 2023 and stronger loan demand.
While maintaining positive on the sector, its top picks are Public Bank and BIMB.
TA Securities analyst Wong Li Hsia also said in a note that she believes the rate hike will bode well for the banking sector's overall earnings, which she estimates would increase by around 2% for every 25bps rise in the OPR.
“Loan yields would immediately be adjusted. That said, banks with higher variable rate loan mix such as Alliance Bank, RHB, Hong Leong Bank and CIMB should benefit more than its peers.
“While at a more gradual pace, deposit rates would also reflect the increase as the fixed deposits mature and subsequently repriced at the higher rates.
"As such, banks with a larger CASA mix, such as Alliance Bank, Maybank and CIMB, would be able to enjoy some cushion from the rate hike,” she said.
In terms of earnings impact, she believed that Alliance Bank and CIMB would be the biggest beneficiaries, followed by Maybank, RHB Bank and AMMB.
She also maintained an "overweight" call on the banking sector.
“The instalment on loans would rise on the back of the increase in borrowing costs. While this would reduce cash flows, we do not expect it to have a significant impact on repayment capacity.
“We continue to observe that the system's asset quality is healthy and stable. Furthermore, we do not envisage this 25bps rate hike to derail loan growth, which we anticipate to increase by 5.8% in 2022, within BNM’s 5.4% to 6.4% forecast,” she said.
Most banking stocks were up on Thursday morning, following BNM's earlier-than-expected rate hike.
At the time of writing, Hong Leong Bank rose eight sen or 0.39% to RM20.62; Public Bank climbed one sen or 0.22% to RM4.66; Maybank grew four sen or 0.44% to RM9.14; RHB increased by three sen or 0.49% to RM6.18; BIMB expanded one sen or 0.34% to RM2.96.