Kenanga Research noted that banks have embarked on improved capital management with payout ratios trending higher towards an average of 55%, from the historical 45% to 50% range.
PETALING JAYA: Analysts have maintained their “overweight” call on the banking sector, citing stabilising net interest margins (NIMs) and robust asset quality as two of the key reasons.
An analyst said he continues to like the banking sector given that it tracks the economy.
“Since our economy is expected to still grow considerably well, my bet is still on the banks,” he said.
Hong Leong Investment Bank (HLIB) Research said December 2025 system loan growth slowed to 4.8% year-on-year (y-o-y) as corporate softness offset resilient household demand.
However, despite tepid applications, firm approvals and rising current account savings account (Casa) momentum suggested stabilising NIMs entering 2026.
Asset quality also remained robust, with the gross impaired loan ratio improving to 1.37% backed by substantial provision buffers, it said.
“We project 2026 growth at 4.8% to 5.3%, anchored by small medium enterprise activity with Visit Malaysia 2026 tailwinds,” it said.
HLIB Research has downgraded RHB Bank
Bhd to “hold” following its recent rally but added AMMB Holdings Bhd (AmBank) to its top picks alongside Malayan Banking Bhd, CIMB Group Holdings Bhd, and Alliance Bank Malaysia Bhd.
HLIB Research said Bursa Malaysia’s finance index had further legs, with the sector currently trading at two standard deviations below its pre-lockdown five-year mean price to book.
This valuation gap is increasingly unjustified given the potential for sector-wide re-ratings, particularly as more banks could be implementing new capital management plans to drive a robust return on equity recovery, it said.
The index remained a prime beneficiary of foreign fund inflows amid an emerging markets rotation, bolstered by undemanding valuations and a compelling dividend yield exceeding 4.5% in a strengthening ringgit landscape, it added.
“This yield spread provides an attractive alternative to the 10-year Malaysian Government Securities, supporting a favourable risk-reward setup for broad-based accumulation.”
Kenanga Research, in its report, noted that banks have embarked on improved capital management with payout ratios trending higher towards an average of 55%, from the historical 45% to 50% range.
Standouts such as AmBank, CIMB and Hong Leong Bank Bhd are better positioned to deliver this with potential to improve given their increasing ability to build surplus capital, it said.
Notably, this remained achievable even as the sector reported a December Common Equity Tier 1 ratio of 14.1%, well above pre-lockdown levels of circa 13%, providing ample buffer for higher distributions, Kenanga Research said.
On Bank Negara Malaysia’s December statistics, it noted that the system loans growth of 4.8% year-on-year (y-o-y) was short of its 2025 target of 5.5%, largely due to weaker-than-expected month-on-month growth in the services sector.
That said, when factoring in the strong pickup in bond issuances within the same sectors, overall credit expansion (5.5% y-o-y) would aligned with its expectations.
Deposits growth also remained modest at 3.4% y-o-y, while Casa ratios rose to a high of 29.8%, suggesting declining appetite for longer-tenure deposits, Kenanga Research said.
“We do not view softening deposit growth and rising loan deposit ratios to be a risk to sector stability, but rather as a structural shift, with banks increasingly leaning on fee-based income from capital market and debt-issuance activities, thereby reducing the need to compete aggressively for deposits to fund loan growth.”
Kenanga Research expected the overnight policy rate to remain unchanged at 2.75% throughout the year.
