MBSB Research said NOII from trading and fee activities will buoy top line performance even as loan margins narrow.
PETALING JAYA: MBSB Research expects domestic banks’ third-quarter 2025 results to reflect resilience despite margin pressure, with non-interest income (NOII) windfall that should offset declining net interest margins (NIMs).
NOII from trading and fee activities will buoy top line performance even as loan margins narrow, according to the research house.
Lending momentum is recovering, led by businesses rather than households.
MBSB Research said: “Business loans are up, while retail loans are down.
“Business loans are slowly but surely replacing retail loans as the dominant driver. Loan applications and approvals have risen, signalling renewed corporate appetite, though much of the actual expansion may materialise in 2026.”
Funding trends are also changing as rate cuts prompt depositors to move out of fixed deposits.
The research house observed a “huge current and savings accounts (Casa) surge as depositors opt not to renew fixed-deposits, particularly among corporate clients.
“Liquidity remains healthy even as banks prepare to release higher-cost deposits to optimise margins,” it said.
The research house warned, however, of “liquidity hoarding activities by year-end, in light of a better loans outlook in 2026.”
On asset quality, the research house described the “overall gross impaired loan (GIL) ratio as relatively flattish,” with isolated impairments in construction and slightly lower loan loss coverage ratios, reflecting greater confidence in credit conditions.
A “huge upswing in bond issuance” could also lift fee income.
It added that “weaknesses and uncertainties in core aspects such as NIM, loan growth, capital, asset quality, and provisioning have diminished greatly over the last several months,” maintaining a “positive” call on the sector.
Its top picks are RHB Bank
Bhd and Public Bank Bhd, both expected to benefit from stronger loan pipelines and capital strength.
CIMB Research noted that sector-wide loan growth remained steady at 5.5% year-on-year (y-o-y) in September versus 5.4% y-o-y in August, supported by a stronger 0.5% month-on-month expansion.”
Additionally, the momentum was driven by “larger corporates’ investment-related loans,” with small and medium enterprise financing outpacing industry growth at 8.1% y-o-y.
Household lending eased slightly to 5.5% y-o-y, reflecting moderation in the auto, residential property, personal, and credit card financing segments.
Despite a dip in monthly applications, the third quarter saw an overall increase in approvals, signalling sustained credit demand.
Deposit growth accelerated to 5.2% y-o-y driven by stronger Casa growth of 8.1% y-o-y while corporate and foreign-currency deposits surged.
Furthermore, the loan-to-fund ratio stood at a comfortable 82.6%, underscoring ample liquidity.
Funding costs have been managed well, with the sector’s “interest spread improved from 259 basis points (bps) in August to 261 bps in September,” reflecting the benefit of rising Casa ratios.
Asset quality remains sound: “Gross impaired loans increased 1% year-to-date with a marginal decline in the GIL ratio to 1.41%.”
“Credit risks are considered benign, with stress contained in auto and non-residential segments.”
CIMB Research remained “neutral” with a positive bias, citing supportive macro tailwinds and robust buffers.
While profitability could be capped by a “lower-for-longer NIM environment,” the research house sees solid returns and dividend capacity.
Its preferred stocks mirrored MBSB Research’s optimism such as RHB Bank, Hong Leong Bank Bhd, and Public Bank.
Both reports said the banking sector is entering 2026 from a position of strength, well-capitalised, liquid, and buoyed by business lending, though still navigating the reality of thinner margins and latent asset-quality risks.
