Another rate cut could cost AmBank RM25m in profit

by FARA AISYAH/ pic by MUHD AMIN NAHARUL

FURTHER reduction of the Overnight Policy Rate (OPR) would affect AMMB Holdings Bhd (AmBank) profitability for the financial year ending March 31, 2021 (FY21), said AmBank group CFO Jamie Ling.

The bank anticipates Bank Negara Malaysia (BNM) to cut the OPR to 1.5% or 1.25% to support the economy battered by the Covid-19 pandemic.

He explained a reduction of 25 basis points (bps) would translate to a RM25 million cut in the group’s annual profit.

“That is the kind of sensitivity around interest rate on us. That said, the nature of the interest-rate reduction is to help borrowers service their loans, which also helps banks in avoiding any default.

“The OPR cut will impact margin, but it provides a cushioning impact on the loss rate of credit,” he said at a virtual press conference yesterday.

The bank’s earnings slipped 6.7% year-on-year (YoY) to RM365.17 million in its first quarter ended June 30, 2020 (1QFY21), from RM391.46 million a year ago, while revenue slid 7.4% to RM2.21 billion from RM2.39 billion previously.

About 60% of its loan portfolio is currently under moratorium which will end on Sept 30, 2020.

AmBank group CEO Datuk Sulaiman Mohd Tahir said the bank expects to see a financial impact once the moratorium ends as more loans will be in default if unemployment rises.

“The unemployment rate has come down — from 5.3% in May to 4.9% in June — which is a good sign. With all the measures in place (including moratorium extension for the unemployed individuals), the impacts will be minimised,” he said.

He does not expect to see much movement in the banking sector in the 3Q of the calendar year as the moratorium ends in September.

Last month, Prime Minister Tan Sri Muhyiddin Yassin announced banks will offer a three-month loan moratorium extension and assistance to targeted groups in view of the current tough economic times.

BNM slashed the OPR for the fourth time last month due to concerns over weak economic conditions. It was cut by 25bps to 1.75%, and the central bank had reduced the OPR by a total of 100bps since January to May this year as concerns grew over a sharp slowdown in 2Q.