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Thursday, May 12, 2022

OPR hike will not dampen loan growth, research houses say

The earlier-than-anticipated 25-basis-point (bps) increase in the overnight policy rate (OPR) to 2.0 percent was viewed by research firms as having no impact on banks’ loan growth, though short-term volatility is anticipated.

MIDF Research has maintained its positive call on the banking sector as banking dividends and earnings are set to benefit from the net interest margin (NIM) increase.

“We are not expecting any notable decline in loan growth in the immediate future, given still-robust leading indicators (loan application growth in March 2022: rising 4.6 percent year-on-year, increasing 47.8 percent month-on-month) and the strong recovering trend of both consumer and corporate demand,” it said in a research note.

MIDF said that banking players’ earnings and dividend offerings are set to benefit from higher NIM.

“Any potential negative impact on loan demand and cash account savings account growth is expected to be minimal. Aside from that, we are still optimistic on banking industry players’ prospects which would be underpinned by lower credit costs in 2022, potential credit writebacks in 2023 and stronger loan demand,” it added.

Kenanga Investment Bank maintains its overnight call on the banking sector as the tightening of monetary policy is likely to impede inflationary consequences from recent volatile commodity prices and supply chain disruptions.

“That said, this is undoubtedly a boon for financial institutions as they will be able to price in higher rates and lift earnings. We do not believe the hike would be disruptive to the local economy as yet, as industry asset quality still appears manageable post moratorium,” it said in a research note today.

Meanwhile, AmInvestment Bhd retains its overweight stance on the banking sector and stays positive on the sector due to the interest rate uptrend cycle which would benefit banks in terms of interest income, as well as room for potential writebacks in management overlays going forward.

“We are also expecting another rate hike of 25 bps, bringing the OPR higher to 2.25 percent in 2H2022 from 2.0 percent at present,” it said.

On the other hand, Public Investment Bank Bhd said short-term volatilities notwithstanding, the start of the rate normalisation cycle and gradual economic recovery will bring about asset quality improvements, loan growth and margin expansions, all of these medium-term boons to the sector.

“While we maintain our neutral view on the sector, it continues to be with a positive bias, given its lagging valuations relative to the broader market,” it said.


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