By Khairie Hisyam
The move by two banks to raise their base rates starting January 2016 does not reflect a trend of raising rates in the sector, said an analyst today, adding the scenario remains unlikely in the current environment.
In a research report today, Maybank Research said UOB Malaysia and OCBC Malaysia, which raised their respective base rates (BRs) this month, are simply adjusting their rates to new BR levels that kicked in on Jan 2, 2015 when the new system was introduced to replace the previous base lending rate (BLR) system.
OCBC Malaysia previously raised its BR from 3.92% to 3.99% effective Jan 2, 2016 while UOB Malaysia raised its BR effective Jan 8 from 3.89% to 4.00%. This increase was to reflect a rise in the three-month Kuala Lumpur Interbank Offered Rate (KLIBOR) that rose from 3.69% mid-2015 to 3.84% at present, said Maybank.
“The base rate increase by UOB Malaysia and OCBC Malaysia reflect a normalisation of the rates and do not reflect a rising trend in the base rate,” said Maybank Research analyst Desmond Ch’ng. “Local banks’ base rates are unchanged and we do not expect the base rate to rise in the current environment.”
KLIBOR is the average interest rate offered for term deposits between 12 banks designated by Bank Negara Malaysia. The final rate is derived from eliminating the highest and lowest rates before averaging the remaining 10.
“Our channel checks indicate that the BRs of local banks are unchanged from when they were first introduced, with Maybank and Public Bank’s BRs being the lowest at 3.25% and 3.65% respectively, and at about 4% for the other banks,” said Ch’ng.
Interest income squeeze
While industry-wide BR may not increase amid moderating economic growth at present, the banking sector is likely to continue grappling with continued compression in net income margin (NIM) this year, said Maybank Research.
This may cause banks to increase spreads over the BR for new loans, wrote analyst Ch’ng in the report today. “NIM pressure will persist this year, for which we have imputed an average 7bps compression for the banks in our coverage, versus an estimated 11bps in 2015.”
NIM is essentially the difference between the amount of interest a bank pays to its deposit-holders and other lenders and the amount of interest it earns from providing loans and other assets. A positive figure is income to the bank.
The local banking sector is already grappling with slowing loans growth as seen in November 2015 statistics, which showed a 7.5% increase compared to 8% in the preceding month. Maybank Research attributed this slowdown to a drop-off in commercial property and working capital loan growth.
“On a 3-month moving average (3M MA) basis, loan application growth was a slower 1.9% YoY in November versus 4.7% YoY in Oct 2015,” said Maybank Research in an earlier report. “Loan approval rates on a 3M MA basis remained low at 43.7%.”
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