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Thursday, November 5, 2009

'Banks with high mortgage exposure to benefit most'

Net interbank lenders and banks with high exposure to mortgage loans like Public Bank, Alliance Bank and Hong Leong Bank will be the biggest beneficiaries of revision in mortgage rates, analysts say.

OSK Research Sdn Bhd analyst Keith Wee said in a report yesterday that banks generally have agreed to raise mortgage rates to BLR (Base Lending Rate) minus 1.5 per cent to -1.9 per cent.

This was from BLR -2.0 to -2.3 per cent before.

Investors welcomed the news yesterday, pushing banking stocks up. Public Bank's warrants saw the most gain by adding 22 sen to close at RM10.92, while RHB Bank's shares followed with a 21 sen increase.

Hong Leong Bank rose 17 sen to end at RM7.90, while Malaysia's largest bank, Maybank, closed 10 sen higher at RM6.82 for the day.
The net impact of the move will be positive as the higher profit margin will more than offset the potential impact of marginally slower loans growth.

"We estimate that the upward revision in mortgage yields would contribute to an 8 to 10 basis points (bps) enhancement in industry net interest margins," Wee said in his report.

Public Bank, which has the strongest mortgage loans growth, will be a key winner with an estimated 3 to 4 per cent enhancement on its financial year 2010 earnings.

The report also said that most banks will no longer absorb the legal fees on loan documentation, which make up about 1 to 2 per cent of loan value, offered earlier.

ECM Libra Investment Research head Ching Weng Jin said while banks will definitely benefit from the BLR raise, mortgage sales are unlikely to be affected.

"It is more of a defensive move by the banks, rates are still cheap at minus 1 (per cent) and I don't think it will affect mortgage sales," he said.

Macquarie Equities Research in a report on the banking sector yesterday said lending rates will stay low until the second half of 2010 due to mild loan growth.

"This has partly driven down pricing, particularly on housing loans. Even if there is a return to rational pricing, we do not anticipate a significant improvement in margins for the banks," Macquarie said.

By Business Times (by Presenna Nambiar)

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