It said on Friday the rate hike is expected to have a marginally positive impact (+2.7% average) on banks’ 2018 earnings, arising primarily from net interest margin (NIM) expansion amid the faster upward repricing of variable rate loans.
“Our in-house view, however, is that this will be the only OPR hike for the year and as such, while sentiment towards banks will likely remain positive in the short term, we maintain our Neutral view on the sector, with BUYs on CIMB, BIMB and HLFG.
Maybank Research expects this to be the only hike for the year. Its economics team had expected it to happen only sometime in May 2018, i.e. after the 14th General Election.
“Taking into consideration expectations of moderating GDP growth and inflation, coupled with further fiscal consolidation, our in-house view is that this will be the only OPR hike for the year,” it said.
NIM is a ratio that measures how successful a firm is at investing its funds in comparison to the expenses on the same investments, according to Investopedia. It typically refers to a bank or investment firm that would invest depositors money, allowing for an interest margin between what is paid to the bank’s client and what is made from the borrower of the funds.
Maybank Research recapped that based on its estimates, the average full-year positive impact to FY18 net profit for the banks in its coverage is +2.7%.
“The impact is estimated to be a larger +5.1% on Alliance Bank, given that it has the highest proportion of variable rate loans and current account/savings account in the industry.
“The impact is estimated to be just marginally positive to HL Bank (+0.8%) mainly because of its low asset utilisation, with a loan/deposit ratio (LDR) of just 82%. We make no change to the earnings forecasts for the banks in our coverage for now,” it said.
While industry loan growth up to Nov 2017 has been sluggish at just 3.9% on-year in November 2017, what is positive is that the research house is seeing an uptick in loan applications and approvals.
On a three-month moving average basis, loan applications expanded at a faster pace of 9.6% on-year in Nov 2017 versus 5.9% on-year in October, while loan approvals expanded at a faster pace of 6.1% on-year in Nov 2017 versus 2.1% on-year in Oct 2017.
“Taking the view that this 25bp rate hike is likely to be the only one for the year, we maintain our expectations of a slight pick-up in industry loan growth to 4.5% in 2018 from 4.1% in 2017,” it said.