Generally positive for banks’ margins
The 25bps OPR hike is positive for banks’ margins and would raise earnings
by about 1-3%. Key beneficiaries would be ABMB, RHB, AMMB and PBK, in
our view. We nevertheless maintain our earnings forecasts for now, given
that a more immediate concern would be the prospect of MTM losses from
rising bond yields. POSITIVE maintained on the sector with BUYs on HLBK,
RHB, AMMB, ABMB, HLFG and BIMB.
A surprise move
BNM surprised with a 25bps hike in the OPR yesterday to 2%. Generally,
the market (ourselves included), has been expecting just one rate hike in
2H22. With this move, our Economics Team now expects a 50bp rate hike
in total this year and 75bps in 2023, versus 25bps in 2022 and 100bps in
2023 previously. Our bank forecasts currently factor in only the impact of
one rate hike in 4Q22.
Maintaining earnings for now
Generally, higher interest rates are positive for banks’ margins.
Nevertheless, a more immediate concern would be the prospect of
marked-to-market losses (MTM) from the rise in bond yields. The 10-year
MGS yield, for instance, currently stands at 4.35% versus 3.6% in Dec 2021.
As such, we maintain our forecasts for now, as any improvement in margins
would serve to buffer against such MTM losses.
1-3% positive impact to earnings
We estimate that every 25bps hike in the OPR would raise earnings for our
banks by 1-3%. Key beneficiaries, in our view, would be ABMB, RHB, AMMB
and Public Bank, which could see an uplift in earnings of about 2.6% each,
from such a move. At the lower end of the spectrum would be HL Bank,
we believe, with an estimated 1% enhancement to earnings.