PETALING JAYA: Recent weakness in banking stock prices have prompted analysts to advocate a “buy” call on the shares while reiterating their “overweight” calls on the sector.
In a report, Hong Leong Investment Bank (HLIB) Research said recent profit-taking had presented an attractive “buy on weakness” opportunity.
At 2027 price-to-book of 0.92 times, the Finance Index is trading at minus one standard deviation below its five-year mean of 1.07 times, suggesting undemanding valuations.
“Current pricing also implies compelling 2027 dividend yields of above 6% for most banks, offering defensive income appeal amid ongoing geopolitical uncertainty and we therefore reiterate our ‘overweight’ rating on the sector,” said HLIB Research.
A banking analyst told StarBiz that bank stocks were “about the only stocks” that can recover very fast, when the market recovers its losses.
“Banks are a proxy to everything, especially the economy and the stock market. If banks are down for a long time, that’s when it’s time to be worried,” he said.
In its report, HLIB Research said the banking sector’s system loan growth improved modestly to 5.2% in February driven by stronger business lending, while household growth remained stable.
However, leading indicators weakened, with a sharp decline in loan applications – particularly from households – resulting in muted approvals.
Deposit growth continued to moderate amid softer current account savings account and foreign inflows with resilient asset quality, it said,
Margins compressed slightly due to higher funding costs. Overall, fundamentals remain intact, with attractive valuations and dividend yields supporting a constructive sector outlook, said the research house.
Kenanga Research said following the recent correction in the sector, it was taking the opportunity to upgrade Malayan Banking Bhd
to “outperform”.
“While we expect flattish earnings growth in 2026 relative to peers due to ongoing investments under its ROAR30 strategic initiatives, current valuations appear more compelling for investors seeking a lower-risk regional banking exposure, supported by its relatively lower exposure to Indonesia,” it told clients.
“Meanwhile, we also upgrade Bank Islam Malaysia Bhd (BIMB) and MBSB Bhd to outperform, underpinned by their attractive dividend yields of more than 6%.”
For BIMB, the research house expects sentiment to improve with the onboarding of a new management team while for MBSB, it anticipates a normalisation in earnings following the weak fourth-quarter 2025 (4Q25) performance from unforeseen provisions, which undermined the gradual recognition of its syndicated financing pipeline, it said.
Kenanga Research said it believes the effects of inflation could be back-loaded.
Thus, it preferred to stay selective with banks that are more insulated to inflationary pressures.
“We believe the sector’s resilience remains intact, supported by attractive and sustainable dividend yields of circa 5%, which continue to position banks as a defensive haven for investors,” it said.
Kenanga Research said following strong accumulation in the 1Q26, and a subsequent pullback amid heightened geopolitical tensions involving Iran, it believed the sector’s longer-term resilience remains intact.
“That said, we flag potential credit cost risks heading into the upcoming May reporting season, where we expect banks are likely to raise macroeconomic overlays by five to 10 basis points, translating to a circa 3.5% to 7% earnings impact.
“This is in response to rising inflationary pressures from oil price volatility, which could drive higher transportation and logistics costs and, in turn, weigh on borrowers’ repayment capacity,” it added.
