If it materialises, it will lift net interest income for banks, improve their fee income outlook and investors can expect attractive dividend yields and valuations.

BNM is expected to make an announcement today. It is widely speculated that the OPR will see a 25 basis point (bps) increase to 2.75% from 2.5%. If so, this will be the fourth rate increase this year.

In a note today, the research house said it has retained the call although the sector must contend with rising deposit competition, normalisation of operating expenditure, and potential economic downturn-induced provisioning and asset quality surprises in the following year.

It noted that in September 2022, loans grew by a solid 6.4% year-on-year (y-o-y) and 0.6% month-on-month (m-o-m).

On an annualised basis, loan growth was 5.8%.

“Loan growth is likely to have peaked at 6.8% y-o-y in the previous month. It should continue tapering down in the first half of 2023 in the presence of less cheap liquidity,” the research house said.

Hence, MIDF Research is maintaining loan growth projections of 5.7% to 6% for 2022 and 4.5% to 6% next year.

It said retail loans grew by 7.5% y-o-y in September 2022 — their strongest performance since the start of the pandemic — which translated to a 0.7% increase m-o-m and an annualised growth of 6.5%.

Credit card loans made up 1.9% of system loans, up 15.5% y-o-y.

“Total purchases in Malaysia by local cardholders dipped slightly from August 2022’s peak, while purchases by foreign cardholders were flattish, comfortably at pre-pandemic levels,” it said.

In contrast, business loans shrank 5.3% y-o-y.

MIDF Research said despite reporting robust figures, system loan applications contracted by 7% m-o-m.

“Core contributors to the steep decline were contractions in hire purchase loans and residential mortgages.

“Working capital loan applications registered a decent 5.4% m-o-m growth, after contracting by 20% m-o-m in August 2022,” it said.

It noted that system loan approvals fell by a steeper 14% m-o-m following more restrictive financing from banks.

“Approval rates dropped to 56.5% in September 2022 from August 2022’s peak of 61%, with a notable reduction in the business loan approval rate,” it added.

Meanwhile, gross impaired loan (GIL) eased by 0.4% m-o-m, with the system GIL ratio falling by two basis points m-o-m to 1.82%. Retail and business loan GIL ratios declined by one basis point and three basis points, respectively.

However, MIDF Research cautioned that GIL ratio is expected to creep up – the peak of which depends on the extent of an economic downturn.