Fixed deposit rates on the rise

This follows Bank Negara’s move to raise OPR

PETALING JAYA: Depositors will be getting higher returns for their savings as banks raise interest rates for fixed deposits (FD) in tandem with the rise in lending rates.

In a telephone survey, StarBiz found that most banking groups, with the exception of EON Capital Bhd, and Alliance Financial Group Bhd (AFG), had already increased their FD rates by about 0.25% yesterday.

Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd, RHB Capital Bhd and Affin Holdings Bhd have also upped their savings rates.

Kua Wei Jin says the FD will also go up when the Klibor or OPR increases
When contacted, EON Cap group CEO Michael Lor said the bank would be raising its base lending rate (BLR) and FD rate by 25 basis points soon.

“With the improving economy, we are confident that this latest rates rise would not affect our growth momentum. Also, Bank Ngeara’s disciplined approach on interest rates augurs well for the economy as a whole,” he added.

This is in response to Bank Negara’s move to lift the overnight policy rate (OPR) by 25 basis points last week.

An analyst with a local stockbroking firm said the rise in FD rates by about the same quantum as the BLR would result in generally, thinner margins for banks.

“This is a surprising move by the banks. Historically, the quantum of increase in FD rates is lower than the rise in BLR.

“The same quantum of increase could be due to the fact that deposit rates are still so low thus, making it affordable for banks to do so. This will also enable banks to attract more depositors and increase their deposit base in anticipation of higher loans growth as the economy improves,” she said.

In addition, the expectations of more OPR increases going forward would enable banks to boost margins further, the analyst said, adding that the recent 25-basis point increase in OPR was small.

TA Securities noted that although the rise in OPR would help boost banks’ net interest margin slightly – since the industry’s average lending rate had been hovering near its all time low of 4.83% – the impact would be minimal.

This is because competition in the industry is expected to intensify as banks aggressively look to grow their asset base.



In general, a rising interest rate environment will bode well for banks with a low exposure to fixed-rate loans and a low proportion of current accounts and saving accounts (CASA) and alternative deposits.

According to ECM Libra, among banking stocks, AFG would have the greatest potential for earnings accretion due to its high proportion of variable rate loans at 84% as well as high proportion of CASA at 37%.

“We believe key beneficiaries include AFG, CIMB, Maybank and RHB Capital due to a combination of high exposure to floating-rate loans (average around 70%) and large pool of CASA deposits (average around 30%),” TA said.

The Kuala Lumpur Interbank Offer Rates (Klibor), which serves as the benchmark rates for interbank lending and borrowing activities, has also increased by 20 to 25 basis points across the board since March 4.

Hong Leong Bank Bhd chief operating officer Kua Wei Jin said banks would have to borrow at higher rates from the interbank market if there was a hike in OPR.

“The FD, being one of the sources for banks to fund their loans, will also go up when the Klibor or OPR increases,” he said.

Nevertheless, Citibank Bhd consumer bank treasurer Lee Chet Leng noted that FD rates were not linked one-to-one to Klibor as they were often driven by different factors.

“FD rates are a reflection of market-based factors such as Klibor, the competitive and regulatory environment and the desire for banks to achieve a particular nature of funding mix,” Lee said.

The AmBank Group has revised the base lending rate (BLR) for AmBank (M) Bhd and the base financing rate (BFR) for AmIslamic Bank Bhd by 25 basis points respectively.

AmBank Group said in a press release that the BLR and BFR would be revised to 5.80% from 5.55% respectively effective yesterday.

EPF declares 5.65% payout after a sound performance

KUALA LUMPUR: The Employees Provident Fund (EPF) has declared a divide nd of 5.65% for the financial year ended Dec 31, 2009, an increase of 1.15 percentage points over the 4.50% paid out for 2008.

The dividend rate was declared on the back of the highest ever net income achieved of RM19.63bil, an increase of 34.82% from the RM14.56bil recorded in the previous year.

“2009 was a significant year for the EPF as it rode out the impact of the global financial crisis.

“While the EPF continues to be challenged by the fragile economic environment, our investments nonetheless delivered a sound performance for the year,” chairman Tan Sri Samsudin Osman said in a statement yesterday.

During the year under review, 72.53% of total invest ment was devoted to fixed income instruments in line with EPF’s prudent approach, while 27.05% was in equities and the remainder in property.

As of Dec 31, 2009, EPF’s investment portfolio grew 8.55% or RM29.25bil to RM371.26bil from RM342.01bil in 2008.

On prospects for next year, Samsudin said it would be “greatly dependent on the economic performance of the country and internationally.”

He said globally, financial markets continued to be volatile and this might have an impact on the price performance of EPF’s investments and future income.

“We will continue to focus on our key goals of preserving the capital of our contributors and ensuring a satisfactory real rate of return,” he added. — Bernama

Fuel prices set to rise

PETALING JAYA: The Government is likely to revert to slight increases in fuel prices over time now that it has been officially announced that the proposed two-tier fuel subsidy scheme based on vehicle engine capacity has been scrapped, analyst and economists say.

The proposed fuel subsidy scheme was originally set to be implemented on May 1.

Maybank Investment Bank analyst Mohd Khair Mirza said: “We may see an increase of about 10 sen in petrol prices post May 1.” He added that it was the only viable option for the moment unless the Government came out with a better fuel subsidy scheme.

Mohd Khair said the two-tier fuel subsidy scheme proposed in theory appeared good on paper but issues such as implementation and enforcement were questionable.

He said: “At least with the slight increase in fuel prices over time it is applied across the board and the Government is able to close the gap on the fuel subsidy which remains unsustainable.”

Mohd Khair said that based on US$80 per barrel of crude oil, the Government was currently subsidising fuel at the pump at around 40 sen per litre.

An economist from a rating agency said although the proposed two-tier fuel subsidy scheme has been scrapped, it should not deter the Government from continuing to look for other schemes that were more practical and viable.

He said a viable scheme should meet two objectives – ensure the hardcore poor are not badly affected and address the fuel subsidy.

A local economist from a broking house said the Government’s decision to scrap the proposed two-tier fuel subsidy scheme based on vehicle engine capacity came as no surprise.

“We figured it (scrapping of the scheme) would happen. There was a lot of talk that the subsidy scheme was not practical, despite a lot of effort by the Government to implement it,” he said.

The economist believed some individuals were waiting to exploit the scheme (if implemented) thinking they could benefit from the scheme.

“Thankfully the Government realised the proposed subsidy scheme was not foolproof and decided to scrap it,” he said.

Bank Negara ups interest rates

Overnight policy rate increased to 2.25%

PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.

The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.

The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.

“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.

It said going forward, domestic growth was expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies which had expanded strongly in the fourth quarter.

Malaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.

“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.

While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.

Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.

The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.

Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.

Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.

According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.

AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.

“It is needed for a gradual move towards the normalisation of rates,” he said.

At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.

We are in the dark over new petrol pricing, says association

IPOH: The proposed new fuel pricing mechanism may not take off on May 1 because most petrol dealers are still in the dark over details of the plan, said a source from the Perak Petrol Dealers Association.

“We are still unsure on the type of car owners who will qualify for the subsidy,” he said.

The source said that the latest information obtained by the association hinted that 2,000cc and above vehicles and company-owned cars would not be entitled to the subsidy.

Under the new system, each motorist was only eligible to one subsidy, he said.

“You can have a garage full of cars registered under your name but only one car will be entitled to it,” he said.

Association chairman Ng Bee Keong said members, whose stations were considered as “high volume”, had been advised to get ready for the change.

”We foresee that more workers would be needed once the system is implemented,” he said, explaining that the workers were needed to assist in the operating of the MyKad reader.

Deputy Domestic Trade, Co-operatives and Consumerism Minister Datuk Tan Lian Hoe, when met at the Perak Chinese Chambers of Commerce and Industry Chinese New Year open house on Monday, said her ministry was still gathering feedback on the matter from the people.

Hassles, congestion and extra costs to come with new fuel subsidy scheme

PETALING JAYA: The Petrol Dealers Asso-ciation of Malaysia has expressed concern that the new fuel subsidy system which uses MyKad for petrol purchase may create hassles for consumers.

The association is worried that the system could cause congestion apart from burdening petrol dealers with additional costs.

Association president Datuk Hashim Othman said a bank had been appointed to manage the operation of the new fuel subsidy scheme and consumers might have to register their car registration number through the bank or petrol stations using MyKad.

He anticipated that it would take a longer time to process transactions as biometrics would be used to verify the vehicle owner’s identity through thumbprint scanning and this could lead to possible congestion at the petrol stations.

“Experts in the field may say it is applicable but people on the ground are worried that the thumbprint scan, which is similar to the practice in the airport, may delay transactions and create congestion at petrol stations,” he told The Star yesterday.

A new petrol pricing mechanism is expected to start on May 1, which is aimed at ensuring that only targetted groups are allowed to buy subsidised fuel.

To implement this, the Government plans to introduce the practice of using MyKad to purchase petrol.

Hashim said the Government was still negotiating the quota of fuel subsidy that each car owner would be entitled to.

“The idea to give fuel subsidy to deserving people is good but we are worried that the system may be complicated and cannot address arising problems.”

He said a pilot project might be carried out in selected petrol stations in the Klang Valley and some outskirt areas at the end of next month or in April.

Hashim said petrol dealers would then have to install the system to be connected to the bank and increase their manpower and this could lead to extra costs for them.

He said petrol dealers might also have to bear additional costs when the Government floated the price of fuel.