May 14, 2011
PETALING JAYA: Banks that have recently raised their base lending rates (BLR) and base financing rates (BFR), following last week’s overnight policy rate (OPR) increase by Bank Negara, will likely see only a slight positive impact on their margins in the near term.
According to analysts, the somewhat marginal impact is due to the ongoing intense price competition among major banks in Malaysia for consumer loans and deposits; hence the recent revision of the BLR and BFR cannot serve as a compelling re-rating catalyst for the sector.
Several major banks in Malaysia, including Malayan Banking Bhd (Maybank), RHB Bank, Affin Bank and UOB Bank, started raising their BLR for their conventional business and BFR for their Islamic finance business by 30 basis points (bps) to 6.6% over the week. These rates will affect lending rates of property, automobile and hire-purchase loans, among others. Similarly, banks have also raised their rate offerings for deposits, with fixed-deposit rates rising by up to 30bps.
The move by those banks was in response to the central bank’s raising of the OPR by 25bps to 3% in the preceding week, which also saw the statutory reserve requirement (SRR) being raised by 100bps to 3%.
“With the magnitude of the BLR and BFR increase being higher than the OPR increase, it would somewhat help to offset the negative impact of the SRR hike on banks’ lending business opportunities,” an analyst with a local bank-backed research house said.
“And the fact that the revision of loan prices tends to be faster than the revision of fixed deposit rates will also be a positive factor that serves to support banks’ profit margins in the near term,” he added.
There could still be another round of OPR rate hike, and even an SRR hike, in the second half of the year, according to most analysts’ expectations. But in general, the net impact on banks’ earnings would most likely remain neutral, analysts believed.
The prospects of the local banking sector going forward will hinge on the investment climate in the country.
AmResearch, for one, foresees a stronger second half this year for banks, due to the expected pickup in corporate loans, thanks to the continuous rollout of projects under the Government’s Economic Transformation Programme.