KUALA LUMPUR: Bank Islam Malaysia Bhd expects its loan growth for the financial year 2022 (FY22) to be higher than its guidance and CGS-CIMB Research's forecast of eight per cent.
However, the research firm noted that any positive impact from the robust loan growth and the hikes in the Overnight Policy Rate (OPR) would be diluted by the potential rise in the cost of funds, partly arising from deposit competition.
"Under its deposit campaign of Term Deposit Tawarruq-i, Bank Islam is offering higher deposit rates of between four per cent (for a 6-month tenor) and 4.4 per cent (for an 18-month tenor), compared to the normal fixed deposit rates of between 1.85 per cent and 2.85 per cent offered by the major banks (for tenors from 1 month to 12 months).
"We think the bank has to offer attractive deposit rates to fund its strong loan growth," it said in a note.
It added that Bank Islam opined that every 25 basis point (bps) hike in OPR would increase its net income margin by 8bps.
The research firm believed this is the largest increase among its sector peers and validates its view that Bank Islam is the biggest beneficiary of OPR hikes among Malaysian banks.
Nevertheless, it said the actual impact could be much smaller due to its aggressive pricing of deposits.
The firm cut its FY22-FY24 earnings forecasts by 1-15 per cent as it raised its projected FY22-FY24 income attributable to depositors (akin to interest expense for conventional banks) by 1-11 per cent to reflect the higher cost of funds.
"We downgrade our rating for Bank Islam from an 'Add' to a 'Hold' on concerns over a potential rise in funding costs arising from deposit competition, which could materially dilute the positive impact of OPR hikes.
"On the flip side, we are positive on its expectations of a robust loan growth of above-8 per cent in FY22, which would be one of the strongest in the sector," it added.
The firm lowered its target price for Bank Islam to RM2.74 from RM3.23 previously.