KUALA LUMPUR (Nov 4): Bank Negara Malaysia's (BNM) latest OPR hike by 25 basis points (bps) to 2.75% allowed banks to gain from a rising interest rate environment as net interest margin (NIM) expanded by 5-6bps while bumping up earnings forecast by 4-5%, according to Hong Leong Investment Bank (HLIB) Research.

In a note on Friday (Nov 4), analyst Chan Jit Hong said that assuming a symmetrical 25bps rate increase for the variable loans and non-current account savings account (CASA) deposits, the big gainers from the OPR hike are Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd (BIMB) while small gainers include Affin Bank Bhd and Public Bank Bhd.

“Studying the trends of Sept 22’s OPR hike, the base rate (BR) and lending rate (BLR) increased 25bps respectively, in line with the official 25bps uptick,” said Chan.

“While for deposits, rates climbed by a similar quantum where one- to 12-month fixed deposits (FD) jumped 21-24bps but savings only ticked up 7bps.”

Meanwhile, the CASA ratio remained high at 31% against pre-pandemic levels of 26%.

Chan added that Alliance Bank and Maybank saw their CASA ratios escalated up the most, by 10-13 percentage points (ppt) from the fourth quarter of 2019 (4Q2019) to 2Q2022.

Affin Bank and BIMB experienced the least build-up by 2-3ppt.

“So far, BNM has raised OPR by 100bps against a total 125bps reduction during the Covid-19 pandemic era.

“This suggests room for lesser rate hikes going forward, hurting NIM if CASA consumption happens later on and competition for FD escalates further,” read the note.

Yet Chan reported that banks were still short-term net beneficiaries given loan-deposit repricing time differences.

“We still view positively the banking sector and opine that the risk-reward profile is skewed to the upside; the combination of robust profit growth and undemanding valuations will be impetus driving performance,” Chan added.

Chan retained "overweight" for the banking sector.

Maybank was favoured for its strong dividend yield while RHB for its high CET1 ratio and attractive price point.

HLIB noted that small-sized banks were "buy" calls for separate reasons, such as BIMB for its laggard share price and Affin Bank for its special dividends potential and strong financial metrics. Alliance Bank was noted for its cash dividend yield of 6% to 7% and large management provision overlay buffer.