KUALA LUMPUR (Jan 22): Public Bank Bhd and Hong Leong Financial Group Bhd rose 2% each among Bursa Malaysia top gainers, as banking stocks responded positively to Bank Negara Malaysia’s planned statutory reserve cut.

At 12:30pm, Public Bank gained 32 sen to RM18.18, while Hong Leong Financial was up 30 sen at RM13.02.

Public Bank and Hong Leong Financial saw share trades of 1.3 million and 77,000 respectively.

Bank Negara's announcement on the statutory reserve requirement (SRR) cut to 3.5%, from 4% for the banking sector, is expected to have a positive impact on the industry, according to analysts.

In a note today, CIMB Investment Bank Bhd said the SRR cut, which would be effective this Feb 1, would ease liquidity concerns in the banking sector.

CIMB said the impact would however be small, as the SRR cut was expected to add some RM5 billion into the banking system.

"In our view, BNM’s (Bank Negara) move to reduce the SRR is not totally a surprise, given the tight liquidity in the banking system.

“The SRR cut at least will send a message to banks that BNM is taking steps to address the tight liquidity in the industry. To a certain extent, this could help to reduce the deposit competition in the sector,” said CIMB.

CIMB maintained its “overweight” call on the banking sector, with RHB Capital Bhd as its top pick.

Meanwhile, Hong Leong Investment Bank Bhd said SRR cut would translate into higher earnings and lower loan-to-deposit ratios (LDR) for banks.

According to Hong Leong Investment, Affin Holdings Bhd and Public Bank are deemed major beneficiaries from Bank Negara's move.

Hong Leong Investment said: “Based on our estimates, the SRR cut would raise banks’ earnings by 0.4% to 1%, and lower banks’ LDR by 0.2ppts to 0.4ppts. Our estimates indicate that Affin would be the biggest beneficiary in terms of earnings, while both Affin and Public bank would be the largest beneficiaries in terms of LDR reduction.”

Hong Leong Investment maintained its “neutral” call on the banking industry, with Malayan Banking Bhd, RHB Capital and CIMB Group Holdings Bhd as top picks.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)