PETALING JAYA: While the banking sector generally experiences net interest margin (NIM) pressure from an interest rate cut as deposits take longer to reprice than loans, the net impact is relatively modest over the medium to long term, according to Mac-quarie Research.
Research head Anand Pathmakanthan said, for example, as guided by CIMB Group Holdings Bhd, the full-year NIM impact is a 2-3 basis points (bps) decline.
“Banks with low current and savings accounts or casa (repricing fixed deposits will reduce funding costs) and higher share of fixed-rate lending will be least impacted, like AMMB Holdings Bhd; on the flip side, banks with high casa and high share of floating rate loans, with minimal ex-commercial banking operations to mitigate, would be most impacted, such as Alliance Bank Malaysia Bhd,” he said.
Today, most financial counters on Bursa Malaysia were in the red following Bank Negara Malaysia (BNM)’s decision to cut the Overnight Policy Rate (OPR) by 25 bps to 3%. The Financial Services Index fell 1.07% to 16,702.87 points.
Public Bank Bhd and AMMB lost 8 sen and 6 sen to RM22.48 and RM4.44, respectively. However, Malayan Banking Bhd and Hong Leong Bank Bhd gained 1 sen and 10 sen to RM8.99 and RM19.80.
Anand said the weaker bias to the ringgit is a boon for exporters, in terms of demand as well as margins. Its top picks in this space are Vitrox Corp Bhd (semiconductor) and Top Glove Corp Bhd (rubber gloves).
Macquarie Research, which was in the “on hold” camp, said a rate cut runs the risk of adding stress on the ringgit, which is already under pressure on concerns of bond market outflows, pertaining to the potential exclusion of Malaysian Government Securities from the World Government Bond Index.
“The OPR cut, which places Malaysia as a relative negative outlier vis-à-vis other emerging markets which have yet to ease, reinforces our view, that the ringgit will be the only Asian currency to depreciate against the US dollar over the rest of 2019 – our pre-cut US dollar-ringgit forecasts for Q1, Q2, Q3, Q4 are RM4.08, RM4.15, RM4.15, RM4.15, respectively.”
FXTM market analyst Han Tan said the ringgit showed little initial reaction to the interest rate cut, holding around the 4.148 handle against the US dollar, given that markets had largely priced in today’s monetary policy decision.
“External headwinds and ongoing con-cerns around the impending slowdown for the global economy are the primary reason behind why several central banks across the world are expected to change their monetary policy outlook this year.
The move taken by BNM to reduce interest rates should encourage a boost to domestic consumption, which would be positive for the Malaysian economy at a time where global conditions are providing headwinds to emerging markets,” he said.
“Should there be a deterioration in trade ties between the world’s two largest economies, that will significantly curtail risk appetite and may in turn weaken Asian and emerging market currencies. Such an event may also see US dollar/ringgit breaking above its 4.15 ceiling, with potential gains for the ringgit harder to come by given the expected resilience of the greenback,” he added.
With the OPR cut, MIDF Research expects improvement in investment and domestic consumption, particularly in the second half. It is maintaining the gross domestic product (GDP) growth estimate at 4.9% for 2019.
“As long as GDP growth is more than 4% and core consumer price index still positive, we opine no further change in monetary stance is required at this juncture. In addition, the Fed has confirmed their position to maintain its current funds rate till end of the year. Since there will be less pressure from both domestic and external fronts, we anticipate Bank Negara Malaysia will maintain the OPR at 3% in 2019.”
Source: The Sun Daily