CIMB Research has upgraded the banking sector to “overweight” from “neutral”.
PETALING JAYA: Malaysia’s banking sector looks set to enter 2026 on firmer footing, as analysts point to easing margin pressure, steadier funding conditions and healthier capital trajectories despite a year marked by policy-rate adjustments and intense deposit competition.
CIMB Research, for one, has upgraded the banking sector to “overweight” from “neutral” in its recent strategy note, citing its “buy” re-ratings for Malayan Banking Bhd
(Maybank) and AMMB Holdings Bhd, alongside its “buy” calls for Public Bank Bhd, RHB Bank Bhd and Hong Leong Bank Bhd.
The brokerage highlighted that although the sector’s core net profit growth is expected to remain subdued at 0.4% year-on-year (y-o-y) for 2025 and 4.3% y-o-y for 2026, the investment thesis for Malaysian banks has shifted from cyclical earnings growth to a phase of “capital-efficient growth” driven by risk-weighted assets (RWA) optimisation.
This, it added, enhances capital headroom and supports more effective capital optimisation and reallocation.
“We project bank earnings to be flattish in the fourth quarter of 2025 (4Q25) as the worst of the net interest margin (NIM) compression from the July 2025 overnight policy rate (OPR) cut eases, while non-interest income (NOII) is expected to hold up on the back of wealth, treasury, and foreign-exchange activity,” CIMB Research said.
The research house added that gross domestic product (GDP) growth is forecast to moderate to 4.1% in 2026 from 4.5% in 2025, but remains firmly anchored by domestic demand.
Dividend visibility and capital uplift are expected to drive the sector’s re-rating potential, with CIMB Research stating: “We believe higher dividend payouts and return-on-equity improvements will be key catalysts to rerate the banking sector’s 2026 price-to-book (P/BV) multiple from one times to around 1.1 to 1.2 times.”
The research house also observed that the sector’s resilience has been evident, noting that the 3Q25 banking results underscored earnings resilience despite NIM pressure from the July OPR cut, supported by stronger NOII, lower provisions and disciplined cost management.
Maybank Investment Bank Research (Maybank IB) likewise struck a constructive tone, remarking that while Malaysia’s loan growth lagged faster-growing regional peers, the country exhibits the characteristics of a “vigilant and well-grounded tortoise”.
It said “absolute impaired loans contracted y-o-y for the 22nd consecutive month (3.8% y-o-y decline), while the industry gross impaired loan (GIL) ratio also continues to trend down to 1.39%”.
Maybank IB upgraded the banking sector to “positive” from “neutral”, pointing to GDP forecast upgrades, steadier margins and benign credit costs.
“We anticipate a more conducive operating environment for the sector into 2026, underpinned by strong macro growth momentum, more stable interest margins and fairly benign credit costs amid stable asset quality,” it said.
The research house forecast aggregate operating income and net profit growth of 4.7% and 5%, respectively, from 3.4% and 3.8% in 2025, with average return on average equity to inch higher to 10.3% in 2026 and 2027.
Maybank IB’s top picks are CIMB Group Holdings Bhd, AMMB and Alliance Bank Malaysia Bhd, citing dividend potential, funding discipline and multi-year earnings strength.
