Analysts mixed on banking sector, predict another rate cut

By BERNAMA / Pic By TMR File

SEVERAL research houses are mixed on the banking sector following the 25-basis-point (bp) cut in the Overnight Policy Rate (OPR) to 2.5% yesterday, and predicted another rate cut in May this year.

While maintaining a ‘Positive’ call on the sector, MIDF Amanah Investment Bank Bhd said another OPR cut would have already been priced in, but banks remained undervalued.

“Banks could have already anti- cipated the rate cuts and would have likely manoeuvred early. There is a possibility that banks did not fervently accumulate fixed deposits given the timing of the second OPR cut this year,” it said in a statement yesterday.

“Net interest margin compression is a given. Furthermore, normalisation could take slightly longer (by two quarters) than previously anticipated.

“Non-interest income growth from treasury activities could moderate the impact,” it added.

MIDF said the 50bp surprise cut by the US Federal Reserve (Fed) to a range of between 1% and 1.25% signalled a tough year ahead.

The move is viewed as a bold attempt to safeguard the US economy on heightening concerns over the Covid-19 outbreak.

The investment bank said the external sector of the US economy is expected to continue on a weak side in 2020. Hence, domestic demand mainly household spending and business investment should expand steadily to maintain GDP growth at above 2%.

“As more challenges emerge particularly on Covid-19, we forecast the Fed to make two more rate cuts this year, 25bps each,” it said.

Meanwhile, Maybank Investment Bank Research (Maybank IB), which has an unchanged ‘Neutral’ call on the sector, expects a further OPR cut during the Monetary Policy Meeting on May 4-5, 2020.

“This would take the OPR down to 2.25%,” Maybank IB said.

“Correspondingly, we have cut financial year 2020 and 2021 earnings by 2% and 1% respectively, and we now expect aggregate core net profit for banks to grow just 0.4% versus 2% in 2019. Positively, attractive dividend yields of more than 5% will provide support,” it added.

Maybank IB’s target prices for banks have been correspondingly lowered but it maintains a ‘Buy’ on Hong Leong Bank Bhd, RHB Bank Bhd, AMMB Holdings Bhd and BIMB Holdings Bhd. — Bernama