KUALA LUMPUR (March 14): Banking stocks extended losses on Tuesday (March 14) to trade at four-month lows, tracking the wider market decline, and as the Signature Bank closure in the US extended negative sentiment triggered by the Silicon Valley Bank (SVB) collapse last week.
Banks were among the big decliners in the morning session, led by Hong Leong Bank Bhd (down 20 sen or 0.99% to RM20.02), CIMB Group Holdings Bhd (down 11 sen or 2.06% to RM5.22), RHB Bank Bhd (down 11 sen or 1.96% to RM5.51), and AMMB Holdings Bhd (down 11 sen or 2.84% to RM3.76).
The financial services index fell as much as 1.54% to more than a one-year low, tracking the FBM KLCI’s decline by 1.45% to a four-month low or 1,400.95 points, as the US and regional markets both traded in the red.
The decline was due to “knee-jerk selling and fears of systematic spread” in relation with the US banking sector, which triggered global selling of banking stocks, said HLIB Research head of retail research Ng Jun Sheng.
There were also “heightened worries” of a hard landing in the US economy, and fears of a serious hit on corporate earnings, Ng said when contacted.
However, asset quality in Malaysian banks is relatively okay following the banking sector consolidation in the 2000s, while it is not really known when it comes to US banks, he added.
Similarly, Areca Capital CEO Danny Wong told The Edge the situation is “unlikely to affect domestic banks” and pointed to the poor market sentiment.
Fears of banking sector systemic issues stemmed from the collapse of established US bank SVB — one of the top 20 banks by assets in the country last Friday — as it sought to sell assets to raise at least US$2.25 billion (RM10.08 billion) in capital.
The bank was heavily concentrated in US Treasuries, which dropped in value when US interest rates rose sharply in the last year.
The sale, to cover drawing of deposits by customers, spooked the market and sparked a bank run and heavy selling that triggered the collapse.
On Sunday, Signature Bank faced similar closure by regulators. The two banks make the second and third largest bank failures in US history, according to reports.
On Monday, Moody’s downgraded the debt ratings of Signature Bank to junk territory, and placed the ratings of six other banks in the US under review for downgrade – namely First Republic Bank, Zions Bankcorporation, Western Alliance Bancorp, Comerica Inc, UMB Financial Corp and Intrust Financial Corp.
An analyst, when contacted, said that while Malaysian banks do not have exposure to SVB, sentiment “hasn’t been great” due to news of more banks facing similar issues.
The concerns impacted investor sentiment, with the coming US inflation data and the SVB bank run potentially weighing on the US Federal Reserve's (Fed) interest rate decision next week, the analyst said.
Should interest rates continue to rise in line with the Fed's indication, US banks’ investment portfolio will continue to go down in value.
The Fed funds rate (upper bound) stood at 4.75%, with indication by the central bank that it could peak at a rate of above 5%, higher than previously forecast.