PETALING JAYA: Analysts have upgraded their call on the banking sector to "overweight", stating that while near-term earnings may not excite, banks are heading into 2026 on fundamentally sound footing with attractive dividend yields.
In a report, RHB Research said corporate banks would benefit from strong loan pipelines while asset quality should hold up. Meanwhile, banks under the Standardised Approach are set to adopt new capital guidelines next year, which could pave the way for capital management initiatives, it said.
RHB Research reckoned the banking sector may see a lacklustre third-quarter earnings season, as domestic net interest margin will be impacted by July’s policy rate cut. "In mitigation, we expect non-interest income to anchor operating income on the back of stronger wealth and market-related fees, while treasury and investment income could stay robust.
"While we do not expect any major asset quality issues, the recent completion of an oil & gas corporate restructuring case paves the way for provision writebacks," RHB Research added.
It said themes for 2026 for the sector included a lower interest rate regime, especially for banks with regional presence like Malayan Banking Bhd
and CIMB Group Holdings Bhd.
"We would watch out for banks’ ongoing efforts to reduce funding costs and the repricing of deposits, given the sharp drop in policy and benchmark rates regionally.
"A low interest rate environment could also be positive for loan demand, current account savings account growth (smaller rate differential vs fixed deposits), wealth management, asset quality; and capital management."
It noted Bank Negara's new capital framework on credit risk could see some banks unlocking excess capital that can be returned to shareholders .
While harder to predict, the return of foreign institutional inflows would also be a key sector catalyst, with CIMB and Public Bank Bhd among the main recipients, it said.
It said corporate banks such as CIMB would benefit from strong loan pipelines, while asset quality should hold up. Meanwhile, banks under the standardised approach, such as Hong Leong Bank and Public Bank, are set to adopt new capital guidelines next year, which could pave the way for capital management initiatives. RHB's top banking picks are CIMB, Hong Leong and Public Bank.
