PETALING JAYA: While leading indicators for the banking sector remain strong based on November 2025 statistics, there are concerns over tightening liquidity and its possible negative impact on the cost of funds in subsequent quarters, particularly amid expectations of stronger loan growth in 2026.
MBSB Research said this remains the sector’s main headwind, while supportive tailwinds continue to underpin growth.
“Multiple banks have commented on the tightening liquidity situation in Malaysia, reporting weaker liquidity indicators (in November 2025).
“We are wary that brighter loan growth prospects in 2026 could dry out liquidity a lot faster than expected, leading to intense deposit competition returning.”
It noted a steady uptrend in banking sector share prices over the past month, supported by elevated dividend yields, improving loan growth prospects, ongoing gross impaired loan recoveries, stable net interest margins (NIMs) and stronger fee income.
The research house sees modest upside potential for share prices with asset quality issues and tighter liquidity remaining secondary concerns for now.
In November 2025, the sector loans expanded 5.2% year-on-year (y-o-y), down slightly from 5.4% growth in October 2025.
However, analysts said lending momentum stayed resilient, supported by stronger leading indicators with loan applications surging and approvals rising too.
Deposit growth slowed to plus 2.7% y-o-y, dragged down by softer current account savings accounts and foreign currency inflows. The interest spread saw a modest uptick of one basis point to 2.39%.
Hong Leong Investment Bank (HLIB) Research expects NIM pressures to have persisted through the fourth quarter of financial year 2025 (4Q25) and likely to ease gradually as deposit costs normalise.
Overall, HLIB Research said system loan growth stayed on track, comfortably within its 2025 forecast of 5% to 5.5%.
It sees limited risk to asset quality, with banks well-buffered by overlay balances and significant impaired loan provisions accumulated over the past five years.
It noted that interest spread inched up by one basis point month-on-month to 2.39%, reflecting continued repricing of three-month board fixed deposit (FD) rates in 4Q25, even as average lending yields softened following July’s overnight policy rate cut.
“With funding costs typically taking six to nine months to fully reprice, and FD competition intensifying through 4Q25, margin pressures will likely persist, keeping NIM under sustained near-term pressure.”
Similarly, Kenanga Research said November figures were in line with its 2025 system loan growth target of around 5.5%, which it expects to be achievable with a seasonally stronger month in December.
“For 2026, we forecast a more moderate system loan growth of circa 5%, anchored to our softer gross domestic product outlook of 4.2%, partly reflecting potential weakness from US tariff headwinds.
“That said, upside risks remain if manufacturing activity proves more resilient on the back of sustained investment inflows.”
The research house said there is also a growing market preference for debt securities over traditional financing.
It favours Malayan Banking Bhd
(Maybank) given its dominant domestic market share in loans and deposits, which supports scalability as conditions improve.
Meanwhile, HLIB Research has moved several stocks from “buy” to “under review”, citing limited upside relative to their current target prices. This applies to Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Maybank and RHB Bank Bhd.
