Friday, July 16, 2010

Nomura Research: HP rates could rise further in near term

KUALA LUMPUR: Nomura Research views that hire purchase rates in Malaysia could rise a further 20 bps in the near term following the 25 bps hike in the overnight policy rate by Bank Negara last week.

It said on Friday, July 16 that it noticed the lending rate for the purchase of cars has risen faster than the OPR increases.

Nomura Research said the quoted flat rate for a new non-national car was 3.5% last week, translating to an effective rate of about 6.5%. This is up from 2.8% (effective: 5.3%) in early 2010, translating to an increase of about 120bps versus the 75bps increase in the OPR over the same period.

"We believe that this is to compensate for the stiff competition in late 2009/early 2010 when effective lending rates fell about 100bps. We view that hire purchase rates could rise a further 20bps in the near term following the latest rate hike," it said.

The research house said following the 25bps hike in the OPR to 2.75% from 2.50%, all banks have increased their base lending rates (BLR) by a similar 25bps to 6.30%.

However, the increase in fixed deposits announced by banks on 13 July has lagged the BLR increase.

Its channel checks show fixed deposit rates for the larger banks (Maybank, CIMB and Public) have been raised by 25bps for shorter tenures and by 5bps for the 12-month rate and are now identical across the one month, three months, six months, nine months and 12 months.

Previously, Public Bank had the highest FD rates in the 3M-12M tenures. As a result, the spread between the 1M and 12M deposit rate has declined to just 10bps from 30bps.

"As 12-month deposits account for about 30% of total fixed deposits, we view this as positive for overall net interest margins," it said.

Among mid-sized banks, both AMMB and RHB Capital have relatively higher term deposit rates with the 6M, 9M and 12M FD rates at a 15-25bps premium to that offered by the big 3 banks. These have been raised by 10-30bps.

On the lending side, our channel checks show that mortgage rates are still being quoted at BLR minus 1.8-1.9%, which is unchanged from end 2009, Nomura Research said that for certain foreign banks, the rates could be 10-20bps lower.

Meanwhile, we noticed that the lending rate for the purchase of cars has risen faster
than the OPR increases.

The research house said it was maintaining its positive view on Malaysian banks. Interest margins will see a temporary expansion as variable rate loans (about 65% of total loans) will reprice faster than deposit rates while longer term deposits (12M) have been rising at a slower pace than the OPR/BLR.

"Our economists believe that there will be another OPR hike by year end to bring the rate to 3.0%. Our top picks within the
sector are Maybank, AMMB and AFG. While AMMB will be adversely affected by OPR hikes, this would be partly offset by active hedging by management as well as strong improvements in loan growth, car hire purchase rate hikes and better asset quality, in our view," it said.

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