KUALA LUMPUR, Nov 11 — The recent reduction in the Statutory Reserve Requirement (SRR) ratio will bode well for the banking sector, providing some relief in terms of better liquidity management and being positive for loan growth and economic activities, said AmBank Research.
On Friday, Bank Negara Malaysia (BNM) announced a 50 basis point cut in the SRR ratio to 3.0 per cent, effective November 16, 2019, which could potentially release RM7.4 billion in liquidity to the banking system.
The last time BNM lowered the SRR was in February 2016, when the central bank cut the ratio to 3.5 per cent from 4.0 per cent.
AmBank Research said with more liquidity in the market, the cost of funds for banks could also be lower thus easing pressure on banks’ net interest margins.
“The lowering of the SRR could translate to a slight reduction in high-quality liquid assets in the calculation of liquidity coverage ratio.
“Banks should also see a reduction in the base rate due to the lower SRR,” the research firm said in a note today.
Meanwhile, AffinHwang Capital said the lowered SRR would be positive for banks as this move would enable them to earn additional interest income through lending activities or investing in higher-yielding securities.
“Ultimately, as the overall business and consumer sentiment is expected to remain cautious in 2020, the liquidity easing measure may not be immediately effective to boost anaemic lending activities in the domestic economy.
“The additional liquidity in the banking system could potentially be used to absorb new Malaysia Government Securities/Government Investment Issue (MGS/GII) issuance in light of the government’s expected rise in 2020’s budget deficit,” it added.
The research house has maintained its ‘neutral’ call on the banking sector, citing the sector’s lack of domestic catalysts and unexciting earnings growth. — Bernama
