KUALA LUMPUR (Nov 14): RHB Investment Bank Research has maintained its "neutral" rating on the banking sector after Bank Negara Malaysia (BNM) announced a 50-basis-point cut in the statutory reserve requirement (SRR).

In a note Nov 11, the research house said with the deceleration in 2019 loan growth (year-to-date September: +3.3% annualised) caused by the muted demand for credit, particularly from businesses, the additional monies should not result in any significant pick-up in loan growth.

On Nov 8, BNM announced the reduction in the SRR ratio to 3.0% with effect from Nov 16.

RHB Research said BNM reduced the SRR "to maintain sufficient liquidity in the domestic financial system and facilitate effective liquidity management by the banking institutions".

It said that effectively, this means RM7.12 billion of additional funds are available for lending by banks.

Should the entire amount be lent out, the research house's projected growth in system loans would just be a little stronger at 4.5% year-on-year (y-o-y), instead of 4.0% y-o-y, for 2019.

In addition, system loans in 2018 expanded by 7.7% y-o-y. In its view, business sentiment must improve in order for a rebound in loan growth to happen.

Nonetheless, RHB Research believed the SRR cut will result in some improvement in asset yields.

While it did not expect banks to turn more aggressive in their lending stance, it said they would likely deploy the additional funds for better returns.

"Assuming the funds are placed in the interbank money market, at the current Kuala Lumpur Interbank Offered Rate (KLIBOR) of 3.3%, this would filter down to a very modest 0.7% uplift in our projected profit after tax and minority interest (PATAMI) for 2020," it said.

Given the insignificant impact from the SRR cut, it made no changes to its earnings forecasts for banks.

The research house anticipated sector core net profit to dip 0.9% y-o-y in 2019, before growing by a moderate 4.5% y-o-y in 2020.

While most banks' loan-to-deposit ratios (LDRs) have risen to multi-year highs, it believed liquidity is not a concern.

"In the current slow-growth environment, most banks have been actively managing liquidity and releasing excess funds to better manage net interest margins (NIMs) to support growth in net interest income," it said.

Meanwhile, the research house's top picks are Hong Leong Bank Bhd ("buy", target price [TP] RM18.70), BIMB Holdings Bhd ("buy", TP RM5) and CIMB Group Holdings Bhd ("buy", TP RM5.60).