BNM decision to maintain OPR to boost banks’ net interest income prospects: CGS-CIMB

PETALING JAYA: Following Bank Negara Malaysia’s decision to maintain the Overnight Policy Rate (OPR) at 1.75% on Tuesday, banks are expected to see a revival in net interest income in 2021.

In a note, CGS-CIMB Research said the central bank’s decision was a surprise as it had factored in a total cut of 150 basis points (bp) to the OPR. However, it said given that the cut did not materialise, it projected the net interest income of Malaysian banks under its coverage to expand by 3.8% in 2021, compared to an expected 6.7% drop in 2020.

“This is because OPR was reduced by 125 bp in 2020, while we are not expecting any cuts in 2021. With this, we expect banks’ net interest margins to be stable (or slightly lower) in 2021, compared to the expected 10-12 bp contraction in 2020F,” it said.

In addition, in the absence of a rate cut, it would raise its projected FY21 net profits for banks by 1-2%.

“The biggest potential increases would be about 8% for Alliance Bank and BIMB, as we see both these banks as being the most sensitive to OPR cuts. Conversely, we estimate that reversing out the 25 bp OPR cut would reduce Affin’s FY21F net profit by 2.8% as it is the only bank that would have benefited from an OPR cut,” it said.

It is maintaining its overweight call on the banking sector, with its top picks for the sector being Public Bank, Hong Leong Bank, RHB Bank and AMMB.