Finance stocks plunge on surprise OPR cut

The KLFIN biggest move in 2 weeks drags the FBM KLCI lower to 1,578 yesterday

by FARA AISYAH/ pic by MUHD AMIN NAHARUL

MALAYSIAN banking stocks fell after Bank Negara Malaysia (BNM) moved to slash the Overnight Policy Rate (OPR) to 2.75% from 3%, which would likely squeeze net interest margins (NIM) and earnings of lenders going forward.

The Bursa Malaysia Finance Index (KLFIN) lost 1.37% or 210.43 — its biggest move in two weeks — to end the day at 15,114.96, thus dragging the FTSE Bursa Malaysia (FBM) KLCI 0.59% or nine points lower to 1,578 yesterday.

MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Yusof said the sector-wide decline was due to profit-taking, given some counters rose in December.

“We believe the sell-off in banks could be a knee-jerk reaction similar to what we observed after the OPR cut in May 2019,” he told The Malaysian Reserve.

BNM reduced the OPR by 25 basis points yesterday in a “preemptive measure to secure the improving growth trajectory amid price stability” amid downside risks to growth including trade tensions, weakness in commodities and delayed implementation of projects.

The monetary authority’s move follows Asian central banks’ slashing of rates in a bid to mitigate the effects of the US-China trade dispute and slowing global growth. Hong Leong Bank Bhd plunged 60 sen or 3.56% to RM16.24 yesterday — the most in more than 21 months, wiping RM1.34 billion from its market capitalisation.

Public Bank Bhd contributed the most to the KLFIN’s decline, falling 46 sen or 2.36% to RM19.02 while BIMB Holdings Bhd lost 14 sen or 3.33% to close at RM4.06, valuing the company at RM7.28 billion after losing RM240 million in market value. CIMB Group Holdings Bhd closed 10 sen or 1.95% lower at RM5.03, Affin Bank Bhd decreased three sen or 1.59% to RM1.86 and Alliance Bank (M) Bhd slipped four sen or 1.58% to RM2.49.

Malayan Banking Bhd lost five sen or 0.58% to close at RM8.55, while AMMB Holdings Bhd dipped two sen or 0.52% to RM3.82. Meanwhile, Hong Leong Financial Group Bhd increased 0.24% to RM16.56 and AEON Credit Service (M) Bhd jumped 1.24% to RM13.06. RHB Bank Bhd was unchanged at RM5.84.

The OPR cut will likely see local lenders’ earnings for the first quarter of 2020 (1Q20) taking a hit from the compression of net interest income (NII) and subsequently, NIM.

“The impact could be muted as the banks could have already anticipated a cut (not necessarily the timing) and positioned themselves accordingly. We believe banks would probably have made some mitigating moves in expectation of a rate cut this year, which is evident by the very subdued deposits competition in November and December 2019 compared to previous years,” Imran said.

As such, he expects banks to experience an NIM recovery in 2Q20.

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