Insignificant earnings impact from potential OPR cut, says Public Bank

The impact is due to the time lag on the re-pricing of the existing fixed deposits, says MD


A reduction in the Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM), widely expected by many economists next month, will not greatly affect Public Bank Bhd’s earnings.

“If there’s any cut in the OPR, there will be a small temporary impact on our net interest margin (NIM), which is insignificant on the overall earnings of the bank.

“The impact is due to the time lag on the re-pricing of the existing fixed deposits. So, there’s a very insignificant impact to our earnings,” Public Bank’s MD Tan Sri Tay Ah Lek said during a question-and-answer session at the group’s AGM in Kuala Lumpur yesterday.

He added that about 78% to 80% of the banking group’s total portfolio is based on variable rates, while the remaining 20% is based on fixed interest rates.

“Our fixed-rate portfolio will, to a good extent, mitigate the impact from the downward revision of the OPR,” Tay added.

Economists and analysts are projecting BNM to lower the OPR by 25 basis points (bps) this year, with the soonest being at the Monetary Policy Committee’s meeting next month, in line with global indicators of an economic slowdown.

Analysts said a 25bp cut in the OPR could dampen local banks’ earnings by around 2% to 3%, while NIMs could see a compression of between 20bps and 25bps.

BNM raised the OPR by 25bps to 3.25% in January last year as global and domestic conditions were ripe for normalisation of rates, coupled with the need to curb risks arising from long periods of low-interest rates.

Prior to the hike, BNM cut the OPR to 3% from 3.25% in July 2016 in order to protect the country from global headwinds including Brexit.

The country’s second-largest banking group by market capitalisation aims to approve up to RM90 billion in financing for home purchases, and small and medium enterprises (SMEs) up to 2021.

“Over the next three years, the group is targeting to approve a total of RM50 billion of housing loans and RM40 billion of SME loans, demonstrating its continued support of government efforts in promoting home ownership and SMEs,” its chairman emeritus, director and advisor Tan Sri Dr Teh Hong Piow stated.

The group’s lending portfolio for residential properties and SMEs amounted to RM110.5 billion and RM69.5 billion respectively as at end-2018, making the bank the largest domestic financier for both segments.

Its market shares of residential housing loans and commercial property loans came in at 19.8% and 35.2% respectively as at the end of last year.

In 2018, Public Bank approved over 42,000 housing loans amounting to RM16.18 billion, of which 62.3% were for the purchases of affordable properties.

Loans approved for SMEs last year stood at RM11.05 billion, accounting for 20.7% of the bank’s domestic loan portfolio.

The bank’s total gross loans and financing expanded 4.2% to RM317 billion as at end-2018, while total customer deposits rose 6.2% to RM339 billion.

It has invested about RM400 million on IT-related capital expenditure over the last three years, including spending on digital infrastructure.

“About RM90 million was spent specifically on financial technology (fintech)-related initiatives. Going forward, the bank is planning to invest another RM600 million in the next three years to further enhance information and communications technology infrastructure, digital capability and knowledge,” Teh said.

The bank is now working on several fintech initiatives including big data analytics, open application programming interface, e-KYC (Know Your Customer) and blockchain technologies.