KUALA LUMPUR (Nov 18): Malaysian banks are expected to experience net interest margin (NIM) compression, with a potential 25 basis points cut in the overnight policy rate (OPR) by Bank Negara Malaysia (BNM) to 2.75% in the second half of 2025 (2H2025), according to AmBank Research.

NIM — a key profitability metric that reflects the difference between interest income on loans and interest paid on deposits — is likely to shrink, limiting the scope for return on equity (ROE) expansion, AmBank Research said in a note on Monday. Nevertheless, asset quality and credit cost will remain stable, the research house noted.

BNM has held the OPR steady at 3% in its final policy review of the year. The central bank has kept rates unchanged since a 25-basis-point hike in May 2023, citing steady economic growth and subdued inflation as key factors.

Last Friday, the central bank announced the country's economy grew by 5.3% year-on-year in the third quarter (3Q2024), but slightly lower than the 5.9% growth recorded in the second quarter. This was attributed to resilient investments, higher exports and expansion in household spending.

Looking ahead to 2025, BNM expects a gross domestic product (GDP) growth of 4.8%-5.3%.

On loan growth, Ambank said “2025 loan growth is expected to taper to 4-5% on a potential tariff driven slowdown in exports and risk to consumption spending from the RON95 rationalisation”.

The rationalisation of the most widely used fuel, which accounts for a significant portion of subsidy expenditure, was announced by the government in Budget 2025. The proposal includes a two-tier pricing system complemented by direct cash transfers.

AmBank Research’s top pick in the banking sector was CIMB Group Holdings Bhd (KL:CIMB), with a fair value target of RM9.50 per share. The research house highlighted CIMB’s higher ROE, driven by improving operating income, as a key factor supporting a potential valuation rerating.

At Monday’s midday market break, CIMB shares were up three sen or 0.37% at RM8.22, giving the bank a market capitalisation of RM88.11 billion. Year-to-date, CIMB shares have gained over 40%.

Conversely, AmBank Research downgraded its recommendation on Malayan Banking Bhd (KL:MAYBANK), the country’s largest bank by assets, to “underweight” from “hold,” citing stretched valuations that have outpaced expectations for ROE improvement.

As of the noon break, Maybank shares were unchanged at RM10.36, valuing the company at RM125.01 billion. The stock has appreciated over 16% so far this year.