KUALA LUMPUR, Sept 18 — Former finance minister Lim Guan Eng has called on the government to protect the people and not banks’ profits.
The DAP lawmaker said the government should instead demand that banks share their “good fortune” following the rise in the overnight policy rate (OPR).
“With the OPR increase slowly creeping back up to the pre-pandemic level of 3 per cent, the banking industry possesses a profitable outlook.
“For this reason, the government should heed the requests from the bottom rung of individual borrowers and the business community, particularly SMEs (small-medium enterprises) for an interest rate waiver and bank loan moratorium for a period of three to six months.
“The banking industry’s healthy profits can sustain the cost of an interest rate waiver and a bank loan moratorium to help the poor and SMEs, overcome higher prices, rapidly depreciating ringgit, severe labour shortage, bureaucratic red tape, failed policy decision making and U-turns and poor governance,” said Lim in a statement today.
Lim made this call, claiming that there is a strong perception that the government prioritises banks over borrowers when it gave assurances that Bank Negara’s OPR increase by 25 basis points (bps) to 2.5 per cent does not enrich the banks because they also have to pay higher interest rates to depositors.
He said the government’s claim that the OPR increases do not enrich banks was not even supported by the banks’ own share research houses on September 9, 2022.
Lim cited Hong Leong Investment Bank Bhd Research (HLIB Research), which said that banks typically gain from a rising interest rate environment.
“Banks are still net beneficiaries following Bank Negara’s increase of the OPR, as the net interest margin (NIM) is anticipated to widen,” he said.
The NIM is a measure of the difference between the interest income generated by banks and interest paid out to depositors. A wider NIM indicates higher earnings for banks.
Lim added that HLIB Research estimated that every 25bps OPR hike would expand sector net interest margin (NIM) by five to six bps.
“This would heighten earnings forecasts by 4 to 5 per cent on a full year basis, without taking into account of potential market-to-market losses and higher defaults,” he said.
As for CGS-CIMB Research, Lim said it had indicated that the OPR increase is likely to benefit banks, as their floating rate loans are larger than their fixed deposits, both of which are adjusted upwards when the OPR is increased.
It added that if OPR hikes in 2023 were factored in, every additional 25 bps hike would increase banks’ net profit forecasts for banks by an estimated 2.1 per cent.
In his statement, Lim also cited PublicInvest Research that noted that all banks, in general, will benefit from a rising rate environment.
“The only difference is not if the banks will record extra profits, but by how much?
“Clearly, only the government believes that the banks do not earn more profits from a rise in the OPR.
“This is borne out by the fact that when the OPR was at 3 per cent during pre-Covid pandemic, the banking industry recorded healthy pre-tax profits of RM41.5 billion in 2019,” said Lim.
When the OPR was reduced to 1.75 per cent by Bank Negara during the Covid-19 pandemic, the banking industry still managed to record healthy pre-tax profits of RM28.5 billion in 2020 and RM33.7 billion in 2021, despite also having to bear the cost of interest rate waiver and bank loan moratorium for the lower income groups.
