KUALA LUMPUR, July 8 ― Research firms have maintained a "neutral” call on the banking sector after the anticipated cut in the Overnight Policy Rate (OPR) yesterday by Bank Negara Malaysia (BNM).

At the Monetary Policy Meeting (MPC) yesterday, BNM lowered the OPR by 25 basis points (bps) to a historical low of 1.75 per cent from 2.0 per cent.

Kenanga Research in a note said looking ahead, it is pencilling in another 25 bps policy rate cut to 1.5 per cent, which is expected to take place in the next MPC meeting in September.

"No change to our earnings forecasts for now. In our view, banks’ earnings ahead remain uncertain and volatile, while the path to recovery is unlikely to be clear-cut.

"Early signs from the banking statistics suggest that pre-emptive loan provisioning may see an acceleration in the second quarter. In mitigation, the re-opening of the economy and significant cuts to the policy rate have helped clear some overhang for the sector,” said Kenanga Research.

Its main top picks are RHB Bank, which is attractive in valuations and solid capital ratios to absorb higher loan allowances while maintaining a decent dividend payout, and Hong Leong Bank as a defensive, 'high quality' bank with a strong digital infrastructure that is poised to benefit from a post-Covid-19 environment.

Meanwhile, AmInvestment Bank said it also anticipates a further rate cut of 25 bps in the second half of 2020, and is now expecting net interest margins (NIM) for the banking sector to be compressed by 13 bps on average.

It said every 25 bps reduction in the rate is expected to impact most banks' NIM by two to four bps and net profit by one to three per cent.

AmInvestment Bank said Alliance Bank is seen as the most affected by the rate cut, followed by Bank Islam.

"We may upgrade the banking sector to 'overweight' when the economy stages a recovery with the early signs of an uptrend in interest rate cycle which will lift interest income and expand NIM of banks and stabilise provisions with a gradual decline in allowances for loan losses ahead, placing the worst of the asset quality woes behind,” it added.

Separately, MIDF Research opined that the impact of this OPR cut on banks' NIM would likely be muted, due to the widely expected decision to cut the OPR and the fact that banks would have adjusted their pricing and strategy accordingly.

"It is also because of the relaxation of regulatory requirements such as Liquidity Coverage Ratio and Net Stable Funding Ratio, which means less need for banks to fight for deposits.

"Besides, depositors may be unwilling to lock in deposits for the longer term and prefer current accounts and savings accounts for now,” said MIDF Research. ― Bernama