Highlight CIMB says Malaysia's 25bps OPR cut would lower banks’ FY17 net profit by about 5%

by **Cals** Fri 15 Jul 2016, 00:40

Highlight

[size=28]CIMB says Malaysia's 25bps OPR cut would lower banks’ FY17 net profit by about 5%

By Chen Shaua Fui / theedgemarkets.com | July 14, 2016 : 11:16 AM MYT
KUALA LUMPUR (July 14): CIMB Investment Bank Bhd said Malaysian banks' financial year 2017 (FY17) net profit could fall by about 5%, following the 25 basis-point (bp) cut in the overnight policy rate (OPR).

Yesterday, Bank Negara Malaysia cut the OPR to 3% from 3.25%, due to slower global economic growth concerns. "Looking ahead, there are increasing signs of moderating growth momentum in the major economies," Bank Negara said.

Today, CIMB analyst Winson Ng said the OPR cut should lead to a reduction in banks’ lending rate, but the decline might not be as big as 25bps.

"In the worst-case scenario, a 25bps OPR cut would lower banks’ FY17 net profit by about 5%. On a positive note, the rate cut should catalyse the banks’ loan growth.

“Following the OPR cut, we think that banks will lower their lending and fix deposit (FD) rates by up to 25bps, but the magnitude is still uncertain at this juncture," Ng said.

Ng said CIMB maintained its “overweight” call on the banking sector, premised on potential re-rating catalysts like earnings per share recovery in 2016 and attractive valuations.

He said Bank Negara's rate cut was expected to "revive banks’ loan growth."

“While the magnitude of the cuts in lending and FD rates are still uncertain, we believe banks will try to minimise any margin contraction, especially in light of their currently thin net interest margins, following years of margin erosion. On a positive note, the rate cut would, to [a] certain extent, help to revive banks’ loan growth. Our top pick is RHB Bank Bhd,” CIMB said.
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