“Banks whose base rates closely track interbank rates, may eventually have to lower their base rates if the downtrend in interbank rates persists,” Maybank Investment Bank Research (Maybank IB). said.
PETALING JAYA: Banks will likely have to cut their base rates – and consequently their effective lending rates – if the interbank rates continue to decline, according to Maybank Investment Bank Research (Maybank IB).
“Banks whose base rates closely track interbank rates, may eventually have to lower their base rates if the downtrend in interbank rates persists,” the brokerage said in a report.
It noted that the three-month Kuala Lumpur Interbank Offered Rate (3MKLIBOR) has been trending down since Bank Negara cut the statutory reserve requirement by 50 basis points (bps) to 3.5% in January this year.
The 3MKLIBOR now stood at 3.67%, which was down by about 17 bps from its recent peak of 3.84% in December 2015to January 2016.
Despite declining interbank rates, Public Bank Bhd, Hong Leong Bank Bhd (HLB) and Standard Chartered Bank (StanChart) had recently increased their base rates by 10 bps.
Public Bank’s new base rate of 3.75% took effect on May 17, while that of HLB at 3.94% took effect on April 25 and StanChart’s 3.77% had been effective since March 18.
“This very much reflects the funding cost pressures that continue to impact the banks, amid still stiff competition for deposits and tighter liquidity,” Maybank IB said.
“Positively, the move by Public Bank and HLB should allow them to reprice upward the rates on their existing loans, thus alleviating some of the pressure on their net interest margins (NIMs),” it noted.
Maybank IB said, however, amid declining interbank rates, there would limited scope for most other domestic banks, except for Malayan Banking Bhd (Maybank), to raise their base rates in tandem with what Public Bank and HLB had done recently.
“We take the view that those banks with base rates of 3.9%to 4% would likely have pegged their base rates to KLIBOR and are unlikely to have much leeway to raise their base rates amid declining inter-bank rates,” Maybank IB said.
“Of the domestic banks, Maybank stands out for having the lowest base rate at 3.20% and therefore has the leeway to raise its base rate if need be. (As for) Public Bank, at 3.75% after the recent rise, still has room to further increase its base rate,” it added.
Noting the possibility of Bank Negara cutting the overnight policy rate by 25 bps by year end, Maybank IB said banks would have to adjust base rates lower if the event materialised, and this would have a negative impact on NIMs.
Maybank IB maintained its “neutral” stance on Malaysia’s banking sector. The brokerage had a “buy” recommendation on Alliance Financial Group Bhd, HLB and Hong Leong Financial Group Bhd, while its view on Public Bank remain unchanged at “hold”.
