Improving credit sentiment on OPR cut

PETALING JAYA: The cut in the overnight policy rate (OPR) is expected to provide a lift to credit sentiment and ease financing burdens, with positive implications for the banking and property sectors.

Bank Negara had reduced the OPR by 25 basis points (bps) to 2.75% last Wednesday – the first cut in nearly two years – citing pre-emptive measures to support growth amid a softening global outlook.

The policy rate had remained unchanged since May 2023, and with inflation projected to stay moderate, the central bank signalled that it aimed to maintain a stable growth trajectory.

According to TA Research, most banks have announced a corresponding 25 bps reduction in their base rate, base lending rate or financing reference rate.

“While we reiterate that the recent OPR cut may exert mild pressure on bank earnings due to softer net interest margins, we see the impact as manageable, especially with support from the statutory reserve requirement cut,” the research house explained.

It added: “We also foresee lower borrowing costs to help lift sentiment and encourage lending, although overall loan growth is expected to moderate slightly due to ongoing cost-of-living pressures and weaker external sentiment.

“Importantly, lower rates may also ease asset quality risks by improving borrowers’ cash flow and repayment capacity.”

TA Research maintained its “overweight” call on the banking sector, keeping its 2025 loan growth forecast at 5.7%.

Its top stock picks in the sector include CIMB Group Holdings Bhd (target price: RM8.86), Public Bank Bhd (RM5.15), and Hong Leong Bank Bhd (RM23.59).

The research house viewed the lower rate environment as providing offsetting benefits through improved sentiment and credit appetite, particularly in the consumer loan space.

“We assess the potential impact of loan growth by revisiting historical periods of OPR cuts to examine trends in residential mortgage and hire purchase loan growth,” it said.

However, in contrast to housing, the automotive sector appeared less responsive to interest rate changes.

“Our analysis indicates that the impact on the automotive sector will be limited,” said TA Research.

“Based on car loan amounts ranging from RM34,580 to RM355,888 and repayment periods of five to nine years, the monthly repayment savings would only range between RM6 and RM67.

“This amount is unlikely to influence consumer purchasing decisions for vehicles significantly,” it added.

TA Research cited historical data to support its view.

It noted that despite a substantial OPR cut from 3.5% to 2% during the 2008/09 global financial crisis, total industry volume (TIV) saw a 2% decline in 2009.

Similarly, during an economic slowdown in 2016, an OPR reduction also failed to bolster auto sales, and during the Covid-19 pandemic in 2020, TIV dropped 12.4%, with recovery driven more by tax incentives than rate cuts.

As such, TA Research maintained a “neutral” stance on the automotive sector, with a “sell” rating on MBM Resources Bhd (target price: RM4.31) and Bermaz Auto Bhd (RM0.75), while Sime Darby Bhd (RM1.66) was rated “hold”.

For the property sector, the lower OPR translated into better affordability and project viability.

Assuming banks fully pass on the rate cut, TA Research said, a 25-bp cut could decrease monthly instalments for a 35-year mortgage by 3.2%.

This could nudge undecided buyers off the sidelines, particularly in the mid-market and mass segments.

TA Research maintained its “overweight” call on the Malaysian property sector heading into the second half of 2025.

“The sector is well positioned to benefit from a confluence of structural and policy-driven tailwinds,” it said.

The research house’s top “buy” picks include Sime Darby Property Bhd (target price: RM2.05) and IOI Properties Group Bhd (RM2.78).