Latest news with #RM19bil
The Star
4 days ago
- Business
- The Star
Local banks positioning for potential OPR cut
HLIB Research noted that fixed deposit competition appeared benign with no significant board rate hikes observed. PETALING JAYA: Local banks are positioning for a potential overnight policy rate (OPR) cut in the second half of the year by paring back deposit rates and recalibrating fixed deposit (FD) strategies. In April, total deposits grew 3.8% year-on-year (y-o-y) and 0.2% month-on-month (m-o-m), supported by current account savings account (CASA) growth of 4.5% and FD growth of 2.5%. The CASA ratio held relatively stable at 28.5%, slightly lower than 28.6% in March 2025 but up from 28.4% a year ago. Meanwhile, the industry's loan-to-deposit ratio (LDR) eased to 87.4%, from 87.6% in the previous month and 86.3% in April 2024. Hong Leong Investment Bank (HLIB) Research noted that fixed deposit competition appeared benign with no significant board rate hikes observed. However, it flagged some cuts of between five and 15 basis points (bps) in promotional and conventional deposit rates across May. 'This is seen as a proactive step taken by banks to manage net interest margin (NIM) in view of the potential OPR cut, and possibly as a sign of easing competition,' it noted in a report yesterday. Similarly, Kenanga Research highlighted that most banks anticipate one OPR cut in 2H25, prompting 'more concerted efforts to drive shorter-term fixed deposit products.' It pointed out that fixed deposits with a tenure of fewer than six months made up 52% of total deposits in April 2025, compared with 51% in March 2025, while deposits with tenures of more than one year declined from 3% to 2%. 'This may likely persist as banks seek to further rationalise their funding cost amid the decline in asset yields,' it said. 'However, as the recent reduction in statutory reserve requirement (SRR) looks to provide some relief to funding cost (up to two bps improvement to NIMs), we believe banks can afford to not overly raise deposit rates to accumulate capital in the near term.' Last month, Bank Negara kept the OPR at 3% but lowered the SRR ratio by 100 bps to 1%, effective May 16 – the first SRR reduction since March 2020, at the start of the Covid-19 pandemic. CGS International (CGSI) Research pointed out that over the first four months of 2025, deposits increased by RM30.8bil, outpacing loan growth of RM23.2bil, 'reflecting improvements in the liquidity of the banking industry, in our view.' 'We believe the cut in the SRR by Bank Negara would release about RM19bil into the banking system, and would further enhance banks' liquidity,' the research house added. Meanwhile, in April 2025, total loans grew by 5.1% y-o-y and 1.0% year-to-date, a marginal slowdown from 5.2% y-o-y in March. The moderation was mainly attibuted to the slightly softer business loan growth, which eased to 4.6% y-o-y versus 4.8% in March. On the other hand, household loans held firm at 6% y-o-y for a second straight month. The industry's gross impaired loans ratio inched up to 1.43% in April from 1.42% in March, but improved from 1.63% a year ago, while loan loss coverage held relatively steady at 91%. CGSI Research viewed the slowdown in loan growth as 'not overly concerning,' noting that the expansion remains within its 2025 loan growth forecast of between 4.5% and 5.5%.
The Star
19-05-2025
- Business
- The Star
Local banks remain steady amid US tariffs and geopolitical risks
PETALING JAYA: The Malaysian banking system is not out of the woods yet, as it continues to face headwinds despite the injection of around RM19bil from the recent 'aggressive' cut in the statutory reserve requirement (SRR) ratio. On May 8, Bank Negara announced that the SRR would be reduced from 2% to 1%, effective May 16. This would release about RM19bil into the banking system amid heightened volatility and uncertainty in global financial markets. However, the central bank left the overnight policy rate (OPR) unchanged at 3%. Economists and analysts noted that while the banking system remains well-capitalised, it still faces risks from US tariffs and geopolitical tensions, despite temporary relief from a 90-day agreement between the United States and China to reduce steep tariffs Most agree that the outcome after the 90 days will be crucial in determining the broader economic impact, which, in turn, will have some effect on the banking sector. The anticipated slowdown in economic growth this year – driven by tariffs and escalating geopolitical risks – could potentially trigger a trade war, dampening global growth and leading to lower interest rates. Lower interest rates are expected to compress banks' net interest margins (NIMs), a key measure of profitability. Currently, the benchmark lending rate, or OPR, stands at 3%, with some economists forecasting at least one rate cut this year. Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that a lower interest rate environment could make a comeback amid heightened global uncertainty from tariff shocks. 'If that happens, it would have an impact on banks' NIM, especially those banks that have a bigger share in variable-rate financing (loan) contracts.' He said weaker gross domestic product (GDP) growth prospects means banks may need to have higher financing loan loss provisions that could affect their earnings in the current year. Tighter credit underwriting standards would also impact loan growth, which could affect NIMs and profitability. 'Intense competition is here to stay. It's a challenging outlook for banks on the whole this year,' he noted. Mohd Afzanizam expects loan growth to reach around 5% for the year. That said, he believes banks' financial positions are still robust and should be able to withstand tariff-related shocks. 'I think the foreign investors are fully aware of this and they would be more than happy to have greater exposure to banking stocks as they are proxy to Malaysia's economic health,' Mohd Afzanizam said. UCSI University Malaysia associate professor of finance and Centre for Market Educationresearch fellow Liew Chee Yoong UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong also expects NIM to face continued compression pressures in 2025. He noted that the confluence of rising deposit competition, stagnant interest rates, and limited room for further loan repricing may weigh on NIM levels across the banking sector. Banks experienced mild margin erosion in 2024, and this trend is expected to persist unless the lending mix shifts decisively toward higher-yield segments such as unsecured personal financing or small and medium enterprise loans, he said. As banks continue to digitalise and adopt new financial technologies, he said their ability to grow non-interest income may offer partial insulation against NIM pressures. 'While margin performance may not dramatically deteriorate, banks will have to work harder to preserve profitability, particularly in an environment where monetary conditions are largely neutral and market yields are plateauing. 'Hence, the NIM outlook for 2025 leans toward a marginal decline or, at best, flat performance compared to 2024,' he said. 'Should inflation remain sticky or unemployment rise, banks may experience a deterioration in asset quality, particularly in unsecured consumer loans. 'Hence, while resilient, the sector must remain vigilant and agile in managing credit risks and regulatory burdens,' he said. RAM Rating Services Bhd senior vice president of financial institution ratings Wong Yin Ching Meanwhile, RAM Rating Services Bhd senior vice-president of financial institution ratings Wong Yin Ching said banks' profits may face pressure in 2025 in line with more moderate loan growth and increased provisions. NIMs are envisaged to stay largely unchanged, with the lower SRR having a mild positive impact. 'NIMs will be predominantly influenced by the direction of the OPR. At this juncture, RAM expects the OPR to remain stable for the rest of the year unless economic growth slows significantly, which is not our base case,' she said. RAM expects slower GDP growth of 3.5% to 4.5% in 2025, down from 5.1% last year. Despite the SRR reduction, she said the rating agency is maintaining its loan growth projection of 4% to 4.5% for the banking sector, citing ongoing trade negotiations as a key uncertainty. 'Consumer loans, particularly home loans, will drive domestic loan expansion, given weaker sentiment and increased caution by businesses. 'Calls for potential deferment of the targeted petrol subsidy rationalisation and revision of the sales and service tax rates and scope, may further support consumer spending,' Wong said.
The Star
13-05-2025
- Business
- The Star
Bank Negara's low SRR benefits banks
PETALING JAYA: Bank Negara has cut the statutory reserve requirement (SRR) ratio to an 'unnaturally low figure', heavily implying that the overnight policy rate (OPR) could be reduced later. However, until the OPR is actually reduced, analyst Samuel Woo of MIDF Research said the lower SRR will bode well for banks' net interest margin (NIM) outlook, alleviating cost of fund-related concerns. 'At the very least, banks now have more cash for investment purposes,' said Woo in a note. A cut to the OPR, down from 3% currently, will offset the upsides to NIM, he added. 'Whether or not this is enough to jumpstart loan growth remains to be seen. '1% is an unnaturally low figure for the SRR rate to be at. Hence, we are expecting this figure to revert to a higher range once signs of economic improvement start to show,' stated Woo. On May 8, Bank Negara announced that the SRR will be reduced by 100 basis points from 2% to 1%, effective May 16. This will release about RM19bil into the banking system, at a time of heightened volatility and uncertainty in global financial markets. The central bank's announcement came on the same day the Monetary Policy Committee decided to keep the OPR unchanged at 3%. TA Research analyst Wong Li Hsia called the SRR reduction as 'broadly positive' for the banking sector, providing banks with additional balance sheet capacity to grow loans and better manage funding costs. This could support higher NIM, especially for banks with a stronger focus on net interest income (NII). 'That said, we note that the system's average loan rate has slipped to 4.97% in March 2025 from 5% a month earlier and 5.37% in March 2024. 'Our estimates suggest that the improved liquidity conditions could lift overall banking sector earnings by around 1.9%.' While the additional liquidity is expected to support credit growth, Wong said banks may also choose to allocate a portion of the freed-up reserves into other income-generating assets, particularly government securities and corporate bonds, thus providing an alternative income stream, especially if loan demand remains subdued in the near term. TA Research made no change to its earnings estimates for now, pending guidance from the banks. 'We also maintain the 2025 loan growth forecast at 6.2% for now, underpinned by consumer and business loan growth of 6.7% and 5.5%, with consumer loans remaining a key driver,' according to Wong. Rakuten Trade described Bank Negara's decision to cut the SRR to 1% as 'aggressive'. However, it believes that the move will spur market confidence. 'However, we hope the banks will also play their part to be less stringent in loan approvals. We view Bank Negara's latest move may encourage some buying interest in the banks.' Meanwhile, Hong Leong Investment Bank (HLIB) Research said the SRR reduction came as a surprise, given the seemingly comfortable liquidity position of the banking sector. On an aggregated basis, there are minimal signs of liquidity stresses in the banking system, with the latest March 2025 liquidity coverage ratio or LCR at a healthy 152%. The system loan-to-deposit ratio or LDR stands at 87.6%, still below the five-year peak of 89.7%. Deposits continue to grow at a steady 3% year-on-year, and fixed deposit competition remains subdued, with no major price wars. Credit demand also remains robust, with loan applications up 5.9% year-to-date. These, collectively suggest no immediate, system-wide liquidity distress. Similarly, the gradual decrease in the three-month Kuala Lumpur Interbank Offered Rate since early 2025 signals interbank liquidity. HLIB Research believes that the SRR move, while seemingly accommodative, is primarily aimed at preserving Malaysia's financial market competitiveness amid regional easing trends. 'By utilising an SRR cut instead of an OPR reduction, Bank Negara strategically avoids direct pressure on the ringgit and the associated risk of imported inflation. 'Positive for banks. Based on our calculations, the additional liquidity could boost bank net profits by 1%-3%, providing a buffer against a potential rate cut. 'Our house view remains that a 25-basis-point OPR cut is likely in the second half of 2025,' according to the research house.
The Star
08-05-2025
- Business
- The Star
Bank Negara signals readiness to cut OPR
PETALING JAYA: Bank Negara is playing a waiting game as it delayed a cut to its benchmark interest rate, despite cautioning that the risks to economic growth are 'tilted to the downside'. The latest Monetary Policy Statement (MPS) sounded dovish, which according to economist Lee Heng Guie, signals Bank Negara's readiness to cut interest rates should the economy slow down significantly. The central bank blamed the United States' tariff measures and retaliations for weakening the outlook of global growth and trade, which remains subject to 'considerable uncertainties'. 'Such uncertainties could also lead to greater volatility in the global financial markets,' warned Bank Negara in the MPS issued yesterday. In a surprise move to help Malaysian banks deal with greater financial market volatility, Bank Negara also announced a 100-basis-point (bps) reduction in the statutory reserve requirement (SRR) to 1% from 2% earlier. The SRR reduction, effective May 16, will release approximately RM19bil worth of liquidity into the banking system. Bank Negara stressed that the SRR is not a signal on the stance of monetary policy and the overnight policy rate (OPR) is the sole indicator. However, OCBC senior Asean economist Lavanya Venkateswaran noted that SRR cuts have more often than not been precursors to OPR cuts, or have at least accompanied cuts in the OPR. 'In the last easing cycle, the SRR was cut by 50 bps in November 2019, followed by a 25-bps rate cut to the OPR in January 2020. The OPR and SRR were reduced further at the March 2020 meeting,' she said. The third Monetary Policy Committee (MPC) meeting of this year yesterday decided to keep the OPR at 3%, in line with market predictions. Earlier, only five out of 25 economists polled by Bloomberg had forecast the OPR to be lowered to 2.75%. The decision by Bank Negara came a day after the US Federal Reserve (Fed) paused its rate cut again at 4.25% to 4.5% as it warned of higher risks to inflation and unemployment. 'I think Bank Negara will wait for more clarity on the tariff negotiation outcome expected in July and incoming data to ascertain the impact on the domestic economy,' said Lee, the executive director of Socio-Economic Research Centre. When asked whether there is a necessity to cut the OPR in the second half of the year, Lee said it depended on the 'hurdle rate' if the gross domestic product growth slows to below 4%. Economist Geoffrey Williams said Bank Negara made the right decision in keeping the OPR at 3%, pointing out that the central bank needed to remain calm and steady in this period of uncertainty. 'There is, therefore, no need to cut rates now and I do not see a need in the foreseeable future for rates to be cut anytime soon. 'In fact, the Fed and most global banks are also adopting a wait-and-see stance,' he said. Meanwhile, OCBC's Lavanya said there is a 'clear risk' that rate cuts could be brought forward to the July-December 2025 period. At the moment, OCBC's baseline estimate is for a cumulative 50-bps cut in the OPR in the first half of 2026. 'All told, we believe Bank Negara was more dovish compared to its March 6 meeting. 'This does open the door for potential rate cuts, but the (MPS) statement does not suggest that it will come imminently,' stated Lavanya. Williams cautioned against reacting prematurely to external developments, including by cutting key policy rates. 'We do not know the full impact of the US tariffs and since the reciprocal tariffs do not affect half of Malaysia's exports to the United States and the rest are likely to be reduced or removed, then the actual impact might not be as bad as pessimistic estimates suggest. 'We are already expecting a UK-US trade deal, with others for Japan and South Korea well underway. 'So, economic uncertainty is actually reducing although geopolitical issues in India-Pakistan, Ukraine and Gaza remain tense,' he added. In the MPS issued yesterday, Bank Negara said the current monetary policy stance is consistent with the current assessment of inflation and growth prospects. 'Recognising that there are downside risks in the economic environment, the MPC remains vigilant on ongoing developments to inform the assessment on the domestic inflation and growth outlook. 'The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.' The MPS noted that the latest indicators point towards continued global growth and trade, supported by domestic demand and front-loading activities. The global growth outlook would remain supported by positive labour market conditions, less restrictive monetary policy and fiscal stimulus. However, the tariff measures announced by the United States and retaliations have weakened the outlook on global growth and trade. For Malaysia, economic activity expanded further in the first quarter, driven by sustained domestic demand and continued export growth. Moving forward, the escalation in trade tensions and heightened global policy uncertainties will weigh on the external sector. The continued demand for electrical and electronic goods and higher tourist spending, however, will provide some cushion to exports. Overall, growth is expected to be anchored by resilient domestic demand. Employment and wage growth, particularly within domestic-oriented sectors, as well as income-related policy measures, will support household spending. The expansion in investment activity will be sustained by the progress of multi-year projects in both the private and public sectors, the continued high realisation of approved investments, as well as the ongoing implementation of catalytic initiatives under the national master plans. The balance of risks to the growth outlook is tilted to the downside, stemming mainly from a deeper economic slowdown in major trading partners, weaker sentiment amid higher uncertainties affecting spending and investments, as well as lower-than-expected commodity production. Meanwhile, favourable trade negotiation outcomes and pro-growth policies in major economies, as well as more robust tourism activity could raise Malaysia's growth prospects. On inflation, Bank Negara foresees it to remain manageable in 2025. Global commodity prices are expected to continue to trend lower, contributing to moderate cost conditions. As for the ringgit, its performance will continue to be primarily driven by external factors. 'Malaysia's favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit,' said Bank Negara.
The Star
08-05-2025
- Business
- The Star
Bank Negara lowers SRR to 1%, boosting system liquidity
File pic - AZMAN GHANI/ The Star KUALA LUMPUR: Bank Negara will lower banks' statutory reserve requirement (SRR) ratio by 100 basis points, from 2% to 1%, effective May 16, 2025. The central bank, in a statement, said the decision to reduce the SRR is part of its continuous efforts to ensure sufficient liquidity in the domestic financial system. 'This will facilitate banks to better manage liquidity in an environment of greater financial market volatility and provide continued support for financial intermediation activity. 'The SRR reduction will release approximately RM19bil worth of liquidity into the banking system,' Bank Negara said. The SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy. The overnight policy rate (OPR) is the sole indicator used to signal the stance of monetary policy and is announced through the Monetary Policy Statement released after the Monetary Policy Committee meeting.
