KUALA LUMPUR: CGS-CIMB reiterated its "overweight" call on banks as key beneficiaries of the overnight policy rate (OPR) hikes after Bank Negara Malaysia (BNM) raised 25 basis points (bps) to 2.50 per cent yesterday.

The research house said the 25 bps hike yesterday was the third OPR hike this year after hikes on May 11 and July 6.

"Our economist projects a total OPR hike of 75 bps in 2022, which means no hike in the November 2022 Monetary Policy Committee (MPC) meeting and 50 bps in 2023. We expect the hikes to benefit banks as their floating-rate loans are larger than their fixed deposits (both of which would be repriced upwards).

"However, the positive impact from OPR hike could be partly diluted by higher cost of funds from a pick-up in the deposit competition," it said in a research note today.

The research house said its analysis also showed that the OPR hike had the largest positive impact on Bank Islam with 7.6 per cent increase in financial year 2023 (FY2023) net profit for every 25bp hike as its floating-rate loan ratio of 91 per cent in FY2023 is the sector's highest.

Conversely, it said the impact would be smallest on Affin Bank's FY2023 net profit with only 0.2 per cent increase for every 25bp hike as its floating-rate loan ratio of 74.1 per cent is one of the lowest in the sector.

CGS-CIMB said in theory, the OPR hikes would have a negative impact on banks' loan growth as this will increase monthly loan repayments for borrowers, and consequently reduce the affordability for loans.

However, it opined that its loan growth projection of 5 to 6 per cent for 2022, which is one of the strongest organic growth rates since 2016, is achievable despite the 75 bps hike in OPR as expected by its economist for 2022.

"Our view is premised on the strong loan growth of 5.9 per cent year-on-year (yoy) at end-July 2022 and swift expansion of close to 80 per cent yoy for both loan applications and approvals in July 2022," it shared.

Kenanga Research also maintained its overweight call on the sector as the OPR rate hike was well expected as inflationary pressures persist globally, albeit to a lesser extent locally, with a greater favour towards prominent dividend yielders for buffers against recessionary concerns.

In the near term, the banks are expected to demonstrate earnings bumps from the normalisation of credit cost post-Covid provisions and eventual writebacks from overlays, while the lapse of prosperity tax in the coming year could also provide a meaningful bump-up to earnings and possibly shareholder returns, it said.

"On the flipside, it noted that market sentiment is still showing signs of tepidness as recessionary-pulled concerns still arise from global macros, with recurring COVID lockdowns in China not inspiring confidence.

"With that, we keep our recommendation to side with banks that could provide solid dividend cushions in the near to medium term," it said.

In another note, MIDF Research maintained its positive call on the banking sector, riding on high loan growth and future OPR hike benefits to net interest income (NII).

With low delinquency rates for graduated repayment assistance loans so far, asset quality issues are not expected to pose any major threats in the immediate future, it said.

However, it noted that funding issues may become a cause for concern in subsequent quarters and so far fixed deposits seemed to be rationally priced, given the excess liquidity still inherent within the market.

Meanwhile, Public Investment Bank Bhd maintained a 'neutral' view on the sector with a positive bias given its lagging valuations relative to the broader market.

"We expect this to be the final hike for the year, with BNM now likely to pause to assess the transmission effects of the cumulative 75 bps hike on the economy.

"We make no adjustment to our earnings assumptions, having already assumed eventual rate normalisations in our forecasts. Asset quality remains as the immediate overhang on the sector, given the potentially challenging economic conditions over the horizon," it added.

-- BERNAMA