BNM’s OPR stance: MIDF stays positive on banking

Kuala Lumpur: MIDF Amanah Investment Bank Bhd (MIDF) has maintained its positive stance on the banking sector, following Bank Negara Malaysia’s (BNM) move to maintain the Overnight Policy Rate (OPR) at 1.75 per cent.

In a statement, BNM said it deemed the current stance of the monetary policy to be appropriate and accommodative, thus supporting economic recovery.

In a research note Thursday, MIDF said the move will provide a reprieve for banks’ net interest margin (NIM) this year.

“We expect that any NIM compression will be benign this year as compared to the pressure from the 125 basis points cuts last year and the modification loss following the loan moratorium.

“Nevertheless, we opine that should there be any further OPR cut/s this year, the impact to banks’ NIM will likely be muted minimal deposit competition,” it said.

MIDF said it is sanguine on the banking sector’s prospects, premised on the country’s economic recovery following the expected availability of the Covid-19 vaccine in the second half of this year (2H 2021). 

“We expect credit cost to start normalising while income will stage a rebound, especially as our economics team opine a potential rate hike in the final quarter of the year. Nevertheless, there would be short term pressures that banks will have to overcome, primarily the potential stress on asset quality.

“But banks in general will be able to weather it, especially those with large loan loss reserves and/or has been resilient during the current challenging environment,” it said.

On a separate note, it said based on BNM’s data, the banking system’s loans growth in November 2020 decelerated to 3.8 per cent year-on-year (y-o-y) from 4.3 per cent y-o-y in October 2020.

This was primarily due to slower growth in business loans, where it declined to RM795.9 billion in November 2020 from RM799.4 billion in October 2020, given the Conditional Movement Control Order (CMCO) imposed during the period.

“However, we expect loans demand to accelerate, leading to higher loans growth this year, especially in 2H 2021.

“Besides consumer loans, we expect that businesses will also drive loans growth to fund the expected increase in business activities as the economy starts to pick up in the second quarter of this year,” it said, subsequently maintaining its forecast of a five per cent y-o-y loans growth for 2021.

MIDF top picks for the sector are Hong Leong Bank (BUY, with target price (TP) of RM19.70) and RHB Bank (BUY, TP: RM5.90).