Hong Leong Investment Bank Bhd (HLIB) has stated that Malaysian banks are poised to remain one of the more appealing sectors for investors seeking shelter from the trade war initiated by United States President Donald Trump. According to the investment bank, the sector’s strong dividend yield of 5.0% provides a compelling carry proposition, which serves both as a cushion against capital downside and an effective price floor amid heightened market volatility.
In its latest note, HLIB noted that sector valuations remain undemanding, and the earnings outlook appears fairly resilient.
HLIB has revised its 2025 gross domestic product growth forecast for Malaysia downwards, from 4.9% to 4.0%. It also indicated that Bank Negara Malaysia may cut the overnight policy rate (OPR) by 25 basis points to 2.75% in the second half of 2025, as a measure to bolster economic growth.
While banks typically experience margin compression following an OPR reduction, HLIB believes the impact could be less pronounced this time, compared to previous unexpected rate cuts. This is largely due to the likelihood of banks adopting a more proactive approach, such as shortening fixed deposit (FD) tenures to enable quicker repricing at lower costs, and moderating FD growth to minimise overexposure ahead of monetary policy adjustments.
Furthermore, HLIB anticipates that the elevated campaign FD rates will ease more significantly within six to nine months after the OPR cut, allowing banks to take advantage of the situation to extend their net interest margin (NIM) expansion.
Nonetheless, the bank estimates that a 25 basis point reduction in the policy rate would compress the sector’s NIM by between 5.0 and 6.0 basis points.
On the non-interest income side, HLIB highlighted that OPR cuts have historically supported trading gains, particularly through improved performance in government securities. The investment bank projects that for every 1.0% increase in non-interest income, banking sector profit would rise by 0.6%.
(Source: Bernama)
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