THE hike in the Overnight Policy Rate to 3.25 per cent will not jeopardise economic growth, said analysts.
But households and businesses may be more cautious on getting additional loans, said Affin Investment Bank, referring to the higher inflation and expectations for Bank Negara Malaysia’s hiking cycle to continue.
“With downside risks supported by stable income growth, favourable labour market conditions, recovery in exports and private sector activity, we keep our 2014 loan growth target of 9.5 per cent unchanged,” said banking analyst Tan Ei Leen.
Bank Negara raised borrowing costs on Thursday after a three-year lapse, as widely anticipated by the market.
According to Tan, banks with asset-sensitive balance sheet stand to benefit, such as Alliance Financial Group (AFG), CIMB Group and Malayan Banking Bhd (Maybank).
For illustration purpose of a full-year impact, given the 25 basis points rate hike, AFG, CIMB and Maybank are expected to see net profit increase by another 2.6 per cent, 2.3 per cent and 2.1 per cent, respectively, this year (based on this year’s expected net profit).
She expects net interest margin enhancement of four basis points on AFG and three basis points on both CIMB and Maybank.
The interest rate impact is expected to be less prominent for Hong Leong Bank, Public Bank and RHB Capital Bhd, while for AMMB Holdings Bhd, it appears that the asset side of the balance sheet is less sensitive to rate.
She added that the repricing effect of loans is expected to be more significant in the first three to six months, and will gradually be tapered down by the repricing effect of deposits.
“Over the longer term, the impact of a rate hike could be muted due to market competition (on loan pricing) and rising cost-of-funds (COFs) arising from potential capital raising as well as competition for deposits.”
The upcoming implementation of the “Prime Rate” (expected early next year) to replace the current base lending rate framework
will see new retail loan pricing more pricey.
This is after accounting for banks’ COFs, borrower credit risk, liquidity risk premiums, operating costs and profit margins.
“Banks are expected to be able to price loan assets better to sufficiently cover underlying risks.”
Meanwhile, Bank of America Merrill Lynch said Bank Negara’s move on Thursday reflect concerns about high household debt (more than 86 per cent of gross domestic product and highest in EM Asia) and the rising role of non-bank financial institutions and financial disintermediation.
‘We expect another 25 basis points hike (to 3.50 per cent) by the year-end, but the hike is more likely to be at the November 6 meeting rather than the September 18 meeting,”said economist Dr Chua Hak Bin.
