KUALA LUMPUR (Oct 1): Malayan Banking Bhd (KL:MAYBANK) fell below RM10 for the first time in nearly nine months and banking stocks mostly declined on Thursday amid rising bond yields.
Higher yields generally hurt banks as they take larger paper losses from lower prices of the bonds they hold, which eats into capital and forces them to book losses if they sell. Investors may also demand higher returns on corporate bonds, affecting appetite for new issuances.
That would weigh on banks’ near term non-interest income as well as their capital ratios, Affin Hwang Investment Bank flagged in a note on Thursday.
Maybank, the country’s top bank in terms of assets, fell for the third straight day and closed down 0.4% at RM9.95. CIMB Group Holdings Bhd (KL:CIMB) and Hong Leong Bank Bhd (KL:HLBANK) each declined over 1%.
The Bursa Malaysia Financial Services Index, which also tracks non-bank firms such as insurers and stockbrokers, fell to its lowest level in 10 months.
The US Federal Reserve raised interest rates earlier this month for the first time in three years, sending the yield on the 10-year benchmark Malaysian Government Securities to as high as 4.18% before moderating.
A growing number of economists expect Bank Negara Malaysia to raise the overnight policy rate in November during the final scheduled monetary policy review for the year.
Rising yields tend to lead to higher corporate bond yields, which also tie-in to capital raising decisions both for banks and other corporates and, subsequently, fee income to the banks, Affin Hwang said.
Maybank and Alliance Bank Malaysia Bhd (KL:ABMB) have on their books the longest bond duration — the length of time for a bond to repay its cost in cash flows while also being a measure of sensitivity to changes in interest rates — according to the research house’s analysis.
Public Bank Bhd (KL:PBBANK) and Hong Leong Bank, meanwhile, have the shortest duration. In terms of capital ratios, Maybank, RHB Bank Bhd (KL:RHBBANK) and CIMB could see the largest drops, while Public Bank and Hong Leong Bank would see the least due to their portfolios’ shorter duration, the house added.