Will OPR Hike Make Banks Richer?

The outcome of Bank Negara Malaysia's move to raise the country's overnight policy rate is that banks will earn more at the expense of the borrowing public. The central bank's decision to raise its Overnight Policy Rate (OPR) means that borrowers will pay more to service their variable-rate loans, which are mainly personal financing, and housing and business loans.

The local banks' earnings could bump up by 2.0-4.0 per cent, some analysts have estimated. This is after OPR was raised by 25 basis points (bps) to 3.00 per cent in a move that surprised market participants.

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Analysts at Hong Leong Investment Bank Bhd (HLIB) estimated that over a one-year forward earnings, the 25bps rate hike would increase the banks' net profit by 3.7 per cent or slightly more than RM1 billion to RM30.07 billion from RM28.99 billion forecasted earlier.

Malayan Banking Bhd (Maybank), for example, may see its estimated net profit during the period rise by about RM310 million or 3.4 per cent to RM9.56 billion from RM9.25 billion as a result of the hike. CIMB Group Holdings Bhd's earnings will likely grow at a faster rate of 5.2 per cent to RM6.63 billion from RM6.3 billion, while Public Bank Bhd's may edge up 1.9 per cent to RM6.82 billion from RM6.69 billion.

HLIB, however, named smaller players Alliance Bank Malaysia Bhd and BIMB Holdings Bhd as the biggest gainers in terms of growth pace. Alliance Bank's net profit should grow 5.8 per cent to RM751 million from RM710 million and Bank Islam parent BIMB's earnings to jump 8.4 per cent to RM690 million from RM637 million.

Every 25bps OPR hike would widen sector net interest margin by 5.0-6.0bps which in turn, lift up earnings forecast by 3.0-4.0 per cent (on a full year basis), without taking into account of potential market -to-market losses and higher defaults. Alliance Bank and BIMB would benefit the most while Affin Bank Bhd and Public Bank are poised to gain the least.

Kenanga Research said similar to the preceding 25 bps OPR hikes, the annualised impact from the recent move also appeared to be a 1.0-3.0 bps increment to banks' net interest margins. This translates to earnings upgrades of up to two per cent.

Bank Negara, in restoring the OPR to the pre-pandemic level (its fifth increase since Covid-19 and first this year), said it was timely to further normalise the degree of monetary accommodation as the domestic growth prospects remained resilient.

There is no problem with an interest rate hike if that is to contain inflation. But this increase in profit due to no effort of their own is a windfall. Hence a windfall tax on bank earnings is timely. Why are they protected? It is time for the banks to contribute excess profits to the Government coffers for the benefits of the rakyat. And when banks are in trouble, it is the taxpayers’ money that is used to bail them out.

Reference:

OPR hike: Banks get richer (by RM1 bil?), borrowers squeezed more, NST Business, 8 May 2023