At the close today, Hong Leong Bank Bhd was down 27 sen or 1.33% to RM19.96, followed by CIMB Group Holdings Bhd (down 16 sen or 3%, to RM5.17), and RHB Bank Bhd (down 14 sen or 2.49% to RM5.48).
Malayan Banking Bhd dipped 10 sen or 1.18% to RM8.34 while AMMB Holdings Bhd tumbled 14 sen or 3.62% to RM3.73.
The financial services index fell as much as 1.54% to more than a one-year low, tracking the FBM KLCI’s decline by 1.45% to a four-month low or 1,400.95 points.
The losses suffered by local banking stocks can be attributed to “knee-jerk selling” and fears of systemic spread that triggered global selling of banking stocks, said Hong Leong Investment Bank (HLIB) Research head of retail research Ng Jun Sheng.
However, the local bourse and banking counters should be grateful they were not as hard hit as the US and other Asian stock markets.
Heavy selling hit US regional bank stocks overnight while Asia’s share markets slid today, with financial stocks in Tokyo leading losses.
Japan’s Nikkei dropped 2.2% with the Tokyo Stock Exchange banks index falling more than 7%. Banks shares in Singapore and Australia fell while Hong Kong shares in HSBC and Standard Chartered dropped more than 5%.
“The unfortunate circumstances that SVB found themselves in is an unlikely precedent for other banks, US or local,” Kenanga Research analyst Chua Min Tze told FMT Business.
This sentiment is shared by MIDF Research which said SVB is a niche bank in the US concentrated in the tech and life science sector, noting the reason for its collapse was “unique and not systemic”.
Whilst sentiment has dampened, Chua said the fundamentals of Malaysian banks are mostly intact and should not be affected by SVB’s predicament.
‘Sili-gone’ Bank an isolated case
To understand if Malaysian banks could be badly affected, Chua emphasised the importance of establishing how exactly SVB met its demise.
First and foremost, SVB is essentially a bank for start-ups. It opened accounts for these companies and gave them loans when other banks were reluctant to do so due to their lack of assets or collateral.
The Silicon Valley boom saw their clients grow flushed with cash, leading SVB’s deposits to quadruple from US$44 billion (RM197.2 billion) at the end of 2017 to US$189 billion (RM846.9 billion) at end 2021, according to an Economist report.
During this time, its loan book grew from US$23 billion (RM103 billion) to US$66 billion (RM295.7 billion).
“SVB has a disproportionately concentrated investment portfolio on bonds, which are said to be mostly purchased when the US Federal Reserve (Fed) rate was at its lowest points,” he explained.
SVB’s annual report for FY2022 reveals that held-to-maturity investments such as bonds made up almost 45% of total assets in both FY2022 and FY2021.
As the Fed started an aggressive cycle of monetary tightening from May 2022 onwards, the value of SVB’s bond portfolio eroded quickly.
“This is due to the inverse relationship between bond prices and interest rates. This erosion is fair value (and) will be reported as losses in their earnings report.”
“This was the likely catalyst of SVB’s bank run as depositors begin to worry if their deposits are safe,” he added.
The fact that the majority of SVB’s clients were corporates made matters worse. The US Federal Deposit Insurance Corporation insures deposits of up to US$250,000 (RM1.12 million) and only 3% of SVB’s depositors were at this threshold.
The bank run and collapse ensued when SVB sought to sell assets to raise at least US$2.25 billion (RM10.1 billion) in capital to cover the drawing of deposits by customers.
“As compared to SVB’s 45% holdings in investments over assets, the largest US banks averaged below 30% while Malaysian banks range between 15%-25%,” Chua pointed out.
Noting this, he said that SVB’s loan-to-deposit ratio was relatively low at 43%, and that their undoing was their “mismanagement of capital”.
In comparison, the average loan-to-deposit ratio for Malaysian banks sits at a comfortable 86%.
“Besides it being in another country and (under) another regulator, the business model of Malaysian banks and SVB is also different,” MIDF Research told FMT Business.
Furthermore, most local banks cater to customers in the Asean region, with a high number of depositors being local. As such, exposure to US clients is limited.
Adjusting one’s exposure
If the markedly different composition of Malaysian banks’ portfolios is insufficient to allay fears of a similar collapse here, investors can adjust their exposures accordingly.
“(For those worried about the same issues here), look for banks that have lower portfolio investment risk, like Public Bank, and with high capital ratios like Maybank and RHB Bank,” Chua advised.
MIDF Research maintains their ‘positive’ call on the sector.
“We believe that any weakness is a buying opportunity, especially given that banks offer attractive dividend yields,” it said.
Kenanga’s last call on the sector was ‘overweight’, noting banking stocks would be firmly held up by resilient earnings.
Meanwhile, MCA president Wee Ka Siong urged the Malaysian government and Bank Negara Malaysia (BNM) to put in place safeguards to prevent a contagion effect arising from the US bank collapse.
“Implement proactive policies and issue a statement to reassure Malaysians and investors that our banks are well-protected, and what happened in the USA will not happen in Malaysia,” said the Ayer Hitam MP.