KUALA LUMPUR – CGS-CIMB views the unchanged Overnight Policy Rate (OPR) of 1.75% as a positive surprise for banks.
In this regard, it has reaffirmed its “overweight” call on banks in light of the improved outlook for net interest income.
In a note today, the research house said Bank Negara Malaysia’s (BNM) decision to maintain the OPR at 1.75% during its monetary policy committee (MPC) meeting yesterday was a surprise to its economist.
The economist had factored in total OPR cuts of 150-basis point (bp), including a 25- basis point cut in November 2020 in the earnings forecasts for most banks.
While expecting the OPR to be maintained at 1.75% until end-2021, CGS-CIMB anticipated banks’ net interest margins to be stable (or slightly lower) in the financial year ending 2021-forecast (2021F), compared with the expected 10-12bp contraction in 2020F.
It also projected the net interest income of Malaysian banks under its coverage to expand by 3.8% in 2021F, compared with an expected 6.7% drop in 2020F, following the likely pause in OPR cuts.
“The expected revival of banks’ net interest income growth and projected 23.4% drop in loan loss provisioning in 2021F underpin our expected recovery in banks’ net profit growth to 14.8% in 2021F, which is a potential re-rating catalyst behind our ‘overweight’ call for banks,” it said. – Bernama, November 4, 2020
