PETALING JAYA: Public Bank Bhd
is anticipated to benefit the most from the implementation of the revised credit risk assessment framework under Basel III for banks applying the standardised approach, which will come into effect on July 1.
“Based on the respective banks’ guidance, Public Bank stands to benefit the most, with an estimated Common Equity Tier 1 (CET-1) uplift of 100 basis points,” Kenanga Research said.
The research house said within its coverage, it estimated the CET-1 relief from the rebased risk-weighted assets of the affected banks would possibly provide dividend yield opportunities of up to 4%, with Bank Islam Malaysia Bhd offering the largest potential.
Public Bank is slightly behind at 3.6% in this regard, the research house added.
Kenanga Research noted that the banks operating under the internal-rating based (IRB) approach such as AMMB Holdings Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd and RHB Bank Bhd are expected to adopt a revised framework only in 2028 and are therefore not projected to recognise any immediate impact from the upcoming changes.
Notably, the upcoming Basel III reforms recalibrate credit risk weights for banks.
Kenanga Research noted these affect banks adopting the standardised approach for calculation of regulatory capital, which rely on prescribed weightage by regulator Bank Negara Malaysia.
“This will impact particularly residential mortgages and certain corporate exposures, resulting in lower risk-weighted assets for affected banks.
“In turn, this effectively improves CET-1 ratios which would then enhance the banks’ capacity to support asset growth or increase shareholder distributions without raising additional equity.”
Note that banks adopting the IRB approach, whereby they rely on their own internal models rather than prescribed weights, are not expected to implement credit risk weight changes until Jan 1, 2028, the research house added.
Kenanga Research said Public Bank has indicated a sustainable payout of at least 60% in the financial year ending Dec 31, 2026 while Hong Leong Bank Bhd raised its financial year ended June 30, 2025 payout to 46% from a historical average of below 35% and appears positioned to maintain similar levels.
A banking analyst told StarBiz that there would be more granular risk classification following the implementation of the revised credit risk assessment framework.
“Also, there will be more consistent and risk-aligned lending decisions,” he said.
In its report, Kenanga Research also said with regard to 2026 forward targets, loan growth is expected to remain stable across the banks with a notable mention of CIMB, which moved towards total asset growth targets as opposed to loans.
The research house cited the intention for more capital efficient fee-based income and a more selective approach on higher-return loan segments.
In its report on the sector, CGS International said it was retaining its “overweight” stance on Malaysian banks, premised on potential re-rating catalysts of write-backs in management overlay, net interest margin recovery in 2026, and expectations for increases in the dividend payout ratios for most banks.
