Banks expected to lower lending rates, but with different quantums

The quantum will differ based on how a bank assesses market conditions and borrowers’ financial capabilities, says analyst


Malaysian banks are widely expected to lower lending rates following a cut in the key Overnight Policy Rate (OPR) by the central bank, but the quantum will differ from bank to bank depending on how much borrowers can absorb.

Bank Negara Malaysia (BNM) on Tuesday opted to lower the OPR — the interest and profit rate which a bank lends to, or receives from, an investment with another bank — by 25 basis points (bps) to 3%.

This was the first cut in nearly three years and comes on the back of downside risks to growth and tightening financial conditions.

MIDF Amanah Investment Bank Bhd analyst Imran Yassin Mohd Yusof said the OPR is the benchmark borrowing rate and banks have historically adjusted their base and base lending rates accordingly.

The quantum will differ based on how a bank assesses market conditions and borrowers’ financial capabilities, he said.

“In actual fact, banks do not have to raise or lower lending rates in line with the OPR. It is a decision they make after accessing market conditions,” he told The Malaysian Reserve (TMR) when contacted.

“Banks are expected to manage the cut in the OPR as they determine how much borrowers can absorb as their funding costs go down.”

He said net interest margins will come under pressure in the short term (over the next one or two quarters) before banks reprice loans and fixed deposits to accommodate for the OPR cut. Margins will normalise soon after.

Malayan Banking Bhd (Maybank) has cut its base rate (BR) by 20bps to 3.05% per annum (pa), while its base lending rate (BLR) has been revised from 6.9% pa to 6.7% pa, its statement yesterday noted.

The country’s largest lender also cut the Islamic BR and base financing rate by 20bps to 3.05% pa and 6.7% pa respectively.

Its fixed deposit rates will also be adjusted downwards by 20bps effective today.

Some lenders quietly raised their lending rate on loans last month in anticipation of the cut in the OPR, most likely to protect their margins.

AllianceDBS Research Sdn Bhd analyst Chin Jin Han said the timeline for banks to adjust their BR and BLR differs based on the asset class.

“Generally, loans pegged to BR and BLR would be adjusted within a short period of time. On the other hand, deposits would only have their rates adjusted upon their respective maturities,” he told TMR.

BNM raised the OPR by 25bps to 3.25% back in January 2018.

The January hike saw Malaysia’s top six banking groups, as well as other financial institutions with domestic operations, raise their financing rates accordingly.

Maybank, CIMB Group Holdings Bhd, Public Bank Bhd, RHB Bank Bhd, AMMB Holdings Bhd and Hong Leong Bank Bhd (HLBB) adjusted their base and BLR higher.

The banks increased the financing quantum by the full 25bps, except for AMMB which opted to increase its base and BLR by 30bps to 4.1% and 6.95% pa respectively.

This translated into an indicative effective lending rate of 4.75% for the bank operating under the AmBank Group, according to latest BNM data.

The indicative lending rate is a gauge of the annual effective lending rate for a standard 30-year housing loan with RM350,000 financing and no lock-in period.

AMMB’s 4.75% effective lending rate is higher than Maybank and Public Bank’s 4.6%, but lower than CIMB, RHB and HLBB that have 5% effective lending rates.

Among the Islamic financial institutions, Al Rajhi Banking and Investment Corp (M) Bhd has the highest effective lending rate at 5.7%, while Kuwait Finance House (M) Bhd, Maybank Islamic Bhd and Public Islamic Bank Bhd have the lowest at 4.6%.

Meanwhile, banking stocks turned in a mixed performance a day af ter the OPR cut was announced.

Shares in Maybank and Public Bank closed lower at RM8.97 (down two sen) and RM22.40 (down eight sen) respectively, while CIMB was flat at RM5.20.

In contrast, RHB closed 13 sen higher at RM5.82, while shares in HLBB rose six sen to end the day at RM19.86.