Monday, August 29, 2011

BNM likely to pause OPR at 3% at Sept 8 meeting

KUALA LUMPUR: Bank Negara Malaysia is expected to pause the overnight policy rate (OPR) at 3% during its Sept 8 monetary policy committee meeting as growth concerns taking precedence over inflation risk while for the banking sector, there are concerns about rising earnings risks for banks.

However, CIMB Economics Research said BNM was likely to reassess its monetary stance in November, allowing it to gauge the impact of recent financial shocks on domestic economic conditions.

'At this point, we maintain our end-2011 interest rate forecast of between 3.00% and 3.25%,' it said on Monday, Aug 29.

CIMB Research also expected BNM to keep the statutory reserve requirement (SRR) ratio unchanged at 4.0% in September. Foreign reserves data suggested the pace of capital inflows have moderated significantly when compared to the massive inflows in 2Q11.

'The recent foreign selling of domestic equities also likely to result in a small rise or even a drop in foreign reserves going forward. he amount of excess liquidity absorbed by the central bank has eased to RM270.9 billion as at mid-August after hitting the peak of RM289.1 billion in April. A cumulative hike of 300 basis points in SRR ratio has absorbed RM23.3 billion liquidity from the banking system,' it said.

Meanwhile, UOB Kay Hian Research Malaysia said it was 'selectively Overweight' with preference for banks with higher earnings visibility and good dividend yield.

'We see rising earnings risk from potential weakness in the domestic economy due to external risk,' it said.

The research house said this could lead to lower loan growth and weaker fee income with capital and debt markets facing risks of softening.

UOB Kay Hian Research said the potential catalyst to the sector was likely to come from Economic Transformation Programme (ETP) initiatives translating into more fund raising through capital markets and potential support to loan growth due to higher business loan demand.

'Amid the uncertainties, we prefer banks with relatively more stable income stream from lending business and stable fee income from transactional banking. An additional sweetener would be reasonable dividend yield,' it said.

The research house's picks are Maybank (BUY/Target: RM10.30) and Public Bank (BUY/Target: RM16.60). It was reviewing its earnings estimate and target price for CIMB (BUY/Target: RM9.60).

It said CIMB's share price fell the most in Aug 11 (-16.2% on-month) due to the heavy selling from foreign funds (July 11: 42% foreign shareholdings) after CIMB missed its earnings guidance for 1H11.

'For the two large GLC banks, we prefer Maybank over CIMB given its lower foreign shareholdings,' it said.

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