Every 25 basis points hike in the overnight policy rate (OPR) will widen the banking sector’s net interest margin (NIM) by five to six basis points, which in turn will lift earnings forecast by three to four percent, Hong Leong Investment Bank said.
It said the rise in the OPR should help alleviate some pressure off the NIM in the second quarter of 2023 since negatives like the repricing of deposits, coupled with current and saving accounts being utilised and substituted for fixed deposits continue to take their course.
“Hence, the pace of NIM slippage will be the largest in the first quarter of 2023 and will taper markedly from the subsequent quarter onwards. Also, we get a sense that the market has become more rational in competing for deposits in recent months,” it said in a note today.
HLB has maintained an overweight call on the banking sector as it sees an opportunity to buy bank stock on weakness in the wake of the recent market slump, given irrational fear-driven selling. HLIB said fundamentally speaking, nothing has deteriorated considerably.
It is tactically bullish on banks again but believed that the market would remain choppy since investors have not shaken off the jitters.
“We advocate employing a more trade-oriented strategy. We expect the appetite for the banking sector to return, spurred by inexpensive valuations, appealing dividend yield, and the undervalued ringgit, luring foreign investors back to the Malaysian market.
“We have five buy calls under our coverage, namely, Public Bank (target price: RM4.80), RHB (TP: RM6.60), AMMB (TP: RM4.35), Alliance (TP: RM4.15) and BIMB (TP: RM3.00).
“Their common trait is their inexpensive valuation and recent price weakness has turned their risk-reward profile to be more favourable,” it said.
On Wednesday (May 3), Bank Negara Malaysia’s Monetary Policy Committee decided to increase the OPR by 25 basis points to 3.00 per cent.
The central bank said the global economy has continued to be driven by resilient domestic demand supported by strong labour market conditions and a stronger-than-expected rebound of China’s economy.
