KUCHING: Bank Negara Malaysia (BNM) maintaining its Overnight Policy Rate (OPR) at 1.75 per cent will provide reprieve for banks’ net interest margin (NIM) as it faced pressure from the 125 basis points (bps) cuts seen this year and the modification loss following from the loan moratorium.
MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Imran Yassin Yusof noted that the impact of any further cuts (should there be any) will likely be muted towards banks’ NIMs.
“We opine that the impact of any further OPR cut to banks’ NIM, should there be any, will likely be muted,” he said in a note.
“This is due to a relaxation of regulatory requirements such as the Liquidity Coverage Ratio and Net Stable Funding Ratio which mean there is less need for banks to fight for deposits; depositors may be unwilling to lock in deposits for longer term and prefer current accounts and savings accounts (CASA) for now; and higher impact from modification loss. In our opinion, banks would have positioned itself to minimise the impact of the OPR cuts.”
In fact, the analystobserved a downtrend in fixed deposit (FD) growth since the OPR cut back in May 2019.
“FD seems to be on a downtrend, contracting for the fifth consecutive month at minus 1.5 per cent year on year (y-o-y) to RM984.1 billion as at July 2020.
“This could be due to the loan moratorium whereby banks will not have to accumulate deposits to fund the loans growth, and possible reluctance from depositors to tie-up their cash flows and savings over longer term with the desire to maintain liquidity given the uncertain conditions as a result of Covid-19.
“For example, CASA expanded at a much faster rate of 18.4 per cent y-o-y to RM600.6 billion as at July 2020.”
What was more discerning was asset quality of banks post loan moratorium, he highlighted.
“The banking system asset quality continued to improve. The gross impaired loans (GIL) ratio as at July 2020 came in at 1.43 per cent from 1.46 the previous month. However, this could be masked by the fact that the loan moratorium as no loans under the moratorium will have been classified as impaired,” he underscored.
“Furthermore, there is lack of visibility as to the impact of the ending of the loan moratorium and guidance from banks seems sketchy at best. We expect gross impaired loans (GIL) ratio to spike up post loan moratorium.”
While Malaysia’s economic recovery is currently underway, MIDF Research opined that it is too short of time period for some businesses to regenerate the loss of income during the movement control order (MCO).
“This will be in tandem with our expectation of an increase in provisions,” he said.
MIDF Research maintained its neutral stance on banks as it expect loans growth to moderate and more importantly the possibility of deterioration of asset quality post loan moratorium.
“Furthermore, the lack of visibility on the situation surrounding asset quality post moratorium highlights our cautious stance,” he added.
“While there seem to be pockets of improvement in the banking sector such as faster pace loans growth and loans applications, we foresee that it will take some time for the situation to normalise. Nevertheless, we do not foresee exacerbated stress to the banking sector as it face current headwinds on a position of strength.”