Winners and losers of Bank Negara’s latest OPR rate hike to 3%

• According to Hong Leong Investment Bank (HLIB), banks, in particular Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd (BIMB), are expected to benefit from the OPR hike as it would help alleviate some pressure off Net interest margins (NIM) in 2Q2023.
• Meanwhile, HLIB said REITs are facing a narrower spread between dividend yields and fixed deposit rates, while the property sector faces an increase in monthly mortgage installments by 3.2%/6.5%/9.9%.

KUALA LUMPUR (May 5): The banking sector emerged a winner, while the property and real estate investment trust (REIT) sectors were the unfortunate recipients of Bank Negara Malaysia’s (BNM) surprise move to increase the overnight policy rate (OPR) by 25 basis points (bps) to 3% on May 3, 2023.

According to Hong Leong Investment Bank (HLIB), banks, in particular Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd (BIMB), are expected to benefit from the OPR hike as it would help alleviate some pressure off Net interest margins (NIM) in 2Q2023.

“We estimate that every 25bps OPR hike would widen sector NIM by 5-6bps which in turn, lift earnings forecast by 3-4% (on a full year basis, without taking into account of potential market -to-market losses and higher defaults)” explained HLIB.

The research unit, citing its sensitivity analysis, expects Affin Bank Bhd and Public Bank to gain the least.

Meanwhile, HLIB said REITs are facing a narrower spread between dividend yields and fixed deposit rates, while the property sector faces an increase in monthly mortgage installments by 3.2%/6.5%/9.9%.

It also noted that the rate hike also led to higher bond yields, resulting in a smaller capacity for the public to have access to capital.

HLIB noted that the current spread between the KLCI’s earnings yield and MGS10 is still relatively attractive at 3.22% (+1.8SD above 5Y mean).

“Intuitively, this spread is a measurement of the relative attractiveness of investing in Malaysian equities vs the country’s risk free rate – a narrower/wider spread makes equities relatively less/more attractive,” it added. 

HLIB said while the OPR hike to 3% came within expectations, should economic growth pick up, this could lead to a subsequent 25bps hike in 2H2023, a view shared by CGS CIMB who said in a note that “despite the earlier-than-expected hike”, it maintained its forecast of a 25bps hike in 2H2023.

 CIMB said the OPR increase to pre-pandemic levels of 3% was initiated to tame inflation alongside strengthening the domestic economy. 

According to Public Bank, BNM's headline and core inflation are anticipated to abate during the course of 2023, ranging from 2.8-3.8%.

“In the monetary policy statement, BNM has deemed the current monetary policy stance to be slightly accommodative and remaining supportive of the economy,” Public Bank further added.