KUALA LUMPUR, March 4 (Bernama) – Several research houses are mixed on the banking sector following the 25 basis point cut in the overnight policy rate (OPR) to 2.50 per cent yesterday, and predicted another rate cut in May this year.
While maintaining a “positive” call on the sector, MIDF Amanah Investment Bank Bhd said another OPR cut would have already been priced in but banks remained undervalued.
“Banks could have already anticipated the rate cuts and would have likely manoeuvred early. There is a possibility that banks did not fervently accumulate fixed deposits given the timing of the second OPR cut this year,” it said in a statement today.
“Net interest margin compression is a given. Furthermore, normalisation could take slightly longer (by two quarters) than previously anticipated.
“Non-interest income growth from treasury activities could moderate the impact,” it added.
MIDF said the 50 basis point surprise cut by the US Federal Reserve (Fed) to a range of between one per cent and 1.25 per cent signalled a tough year ahead.
The move is viewed as a bold attempt to safeguard the US economy on heightening concerns over the COVID-19 outbreak.
The investment bank said the external sector of the US economy is expected to continue on a weak side in 2020. Hence, domestic demand mainly household spending and business investment should expand steadily to maintain gross domestic product growth at above two per cent.
“As more challenges emerge particularly on COVID-19, we forecast the Fed to make two more rate cuts this year, 25 basis points each,” it said.
Meanwhile, Maybank Investment Bank Research (Maybank IB), which has an unchanged “neutral” call on the sector, expects a further OPR cut during the Monetary Policy Meeting on May 4-5, 2020.
“This would take the OPR down to 2.25 per cent.
“Correspondingly, we have cut financial year 2020 and 2021 earnings by 2.0 per cent and 1.0 per cent respectively, and we now expect aggregate core net profit for banks to grow just 0.4 per cent versus 2.0 per cent in 2019,” Maybank IB said.
“Positively, attractive dividend yields of more than 5.0 per cent will provide support,” it added.
Maybank IB's target prices for banks have been correspondingly lowered but it maintains a “buy” on Hong Leong Bank, RHB Bank, AMMB Holdings and BIMB Holdings.
TAGS: Maybank IB, OPR, COVID-19, Fed, BNM, Economy