Banks' net interest income growth to revive this year

KUALA LUMPUR: CGS-CIMB Research (CGS-CIMB) said the absence of Overnight Policy Rate (OPR) cuts in 2021 would support its expectation of a revival in net interest income growth for banks this year.

The brokerage firm said banks would witness a recovery in net profit growth for the 2021 financial year (FY21), which would also be supported by the projected drop in loan loss provisioning.

It expects banks' net interest margins (NIMs) to expand marginally by 2.0 basis points to 3.0 basis points in FY21 if there is no OPR cut this year.

"Banks' NIMs in FY20 were hurt by modification losses for fixed-rate loans, but we do not expect any material modification loss for banks in FY21.

"We see this as a potential re-rating catalyst for our overweight call on Malaysian banks. Our picks for the sector are Public Bank, Hong Leong Bank and RHB Bank," it said in a research note today.

Bank Negara Malaysia (BNM) has maintained the overnight policy rate (OPR) at 1.75 per cent at its Monetary Policy Committee meeting on Thursday, in line with CGS-CIMB's expectation.

"Our economist now expects BNM to maintain the OPR at 1.75 per cent throughout 2021 versus a projected 25 basis point cut previously. We are positive on this view as OPR cuts are negative for banks' NIMs," it added.

It noted that the reversal of the OPR cut would increase FY21 net profit forecasts (FY21F) by about 1.7 per cent, adding that Alliance Bank would see the largest increase at 7.5 per cent for its FY22F net profit.

"The bank is one of the most sensitive to the changes in interest rates, due to its high floating-rate loan ratio of 82 per cent and high low-cost deposit ratio of 37.9 per cent in FY22F, based on our estimates," said CGS-CIMB.

At 10.45 am, Maybank added one sen to RM8.21, Public Bank gained three sen to RM4.26, RHB Bank jumped 10 sen to RM5.42, Hong Leong Bank eased four sen to RM18.38, Alliance Bank fell two sen to RM2.58, and CIMB shed two sen to RM4.35.

-- BERNAMA