KUALA LUMPUR, May 6 ― Maybank Investment Bank (Maybank IB) expects a pause in the overnight policy rate (OPR) at 2.00 per cent as Bank Negara Malaysia (BNM) and the government monitor the implementation and effects of various policy measures.

The investment bank is keeping its end-2020 OPR forecast of 2.00 per cent for now.

While the Statutory Reserve Requirement (SRR) ratio is unchanged at 2.00 per cent, BNM had in March 2020 allowed banks to use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) to comply with the SRR effective May 16, 2020 until May 31, 2021.

"This will effectively free up liquidity without the need to revise the SRR,” said Maybank IB in a note today.

Yesterday, the central bank announced a 50 basis points (bps) OPR cut, taking the total cut this year to 100bps, following the 25bps OPR cuts on Jan 22 and March 3.

"This is in line with our economic team’s in-house expectations,” said Maybank IB, adding that the bank’s earnings forecasts impute three rate cuts of up to 75 bps this year.

"While this May cut is 25bps larger, we maintain our earnings estimates. The bulk of deposits typically reprice within three to six month of a rate cut and the fact that this eventually offsets the decline in yields has yet to be incorporated into our models,” said Maybank IB.

On aggregate, the investment bank expects net interest margins (NIMs) to compress by 7.0 bps in 2020 against 6.0 bps in 2019, for banking stocks in its coverage.

"Having factored in slower loan growth, NIM compression, lower fee and investment income as well as higher credit costs, we have cut the aggregate 2020/21 earnings for the banks within our coverage by 13 per cent/15 per cent respectively.

"We now expect aggregate net profit to contract by 13 per cent in 2020 with a modest growth of 2.0 per cent in 2021 on still elevated credit costs,” it added.

As at 12.10pm, the financial services index on Bursa Malaysia rose 4.26 points to 12,358.36. ― Bernama