KUALA LUMPUR, Nov 11 -- United Overseas Bank (Malaysia) Bhd (UOB) expects RM7.4 billion of liquidity would be released into the banking system following Bank Negara Malaysia (BNM) move to reduce the Statutory Reserve Requirement (SRR) ratio by 50 basis points to three per cent effective November 16.
UOB said year-to-date, excess liquidity in the banking system (less SRR) has declined by RM16.8 billion to RM119.4 billion as at end-September versus RM136.2 billion as at end-2018.
“Banks’ cost of funds and base rate (BR) are expected to adjust lower in tandem with the SRR reduction,” it said in a research note today.
Currently, the commercial banks’ weighted BR is at 3.68 per cent.
UOB said banking system loan growth has moderated to a record low of 3.8 per cent in September from 7.7 per cent as at end of 2018 since the data was compiled in Jan 2007.
“Growth of net financing also eased below five per cent for two straight months -- 4.8 per cent in September and 4.9 per cent in October,” it said.
However, it said loan-to-deposit ratio held steady at 88.4 per cent in September as compared to 88.3 per cent as at end-2018.
UOB said the SRR reduction, the first reduction since Jan 2016, also comes amid a moderation in domestic liquidity as broad money supply (M3) growth.
It said M3 growth came off to 3.9 per cent year-on-year in September, the lowest level in two years, partly due to a decline in net foreign assets which fell RM24.5 billion in August-September.
“The SRR move followed swiftly after foreign portfolio flows recorded cumulative outflows of RM4.6 billion in January-October 2019 mainly due to larger outflows from domestic equities,” it said in a research note today.
It said foreign ownership of Malaysian equities ebbed to a two and a half-year low of 22.7 per cent of total market capitalisation in October while foreign ownership of government bonds hovered at 22.2 per cent of total outstanding in October, compared to 24 per cent in the same period last year and peak of 34.4 per cent in October 2016.
Meanwhile AmInvestment Bank in a separate note said the SRR cut coupled with the recent decision by BNM to maintain the overnight policy rate (OPR) at three per cent and signal of a rate pause in the US Federal Reserve which put lesser pressure on central banks regionally to further reduce rates, have improved the sentiment on banking stocks with more buying interest seen lately.
The investment bank has maintained “Overweight” on the sector premised on appealing valuations and dividend yields due to the low share prices.