BANK Negara Malaysia's 150 basis points cut in the statutory reserve requirement (SRR) to 2.0 per cent, will put about RM9 billion back into the financial system, to be used by banks to generate income.
However, the reduction in the overnight policy rate (OPR) which saw most financial institutions reduce their base lending rates by 55 basis points to 5.95 per cent, will certainly impact earnings in the short term given the initial period of adjustment, said ECM Libra Investment Research in its January monthly review.
It said the situation will eventually normalise given the current low loans/deposit ratios which allows banks to generate new levels of income, albeit on reduced margins.
That said, ECM Libra is of the opinion that the banks' earnings impacted negatively overall banking loans registered a 12.8 per cent growth in December 2008, higher than the 10.7 per cent in November, but the number is distorted by huge repayments in December 2007 which brought the base lower during that particular period.
ECM Libra pointed out that loan applications and approvals in December 2008 dipped 18.8 per cent and 23.7 per cent respectively on lower demand for business-related loans.
"While it is still a little too preliminary to conclude widespread delinquencies, we do recognise that the risks persist.
"This is however, mitigated by the improving coverage levels of the banking system's non-performing loans (NPL), which are now more than twice the recent crisis years of 1997/1998 and 2001," ECM Libra said.
The research house said the net NPL ratio improved further to 2.2 per cent and 1.7 per cent on a three-month and six-month basis respectively, amid weakening economic conditions.
Meanwhile, the system's capitalisation remained strong with a risk-weighted capital ratio and core capital ratio of 12.6 per cent and 10.5 per cent respectively. - Bernama |
