PETALING JAYA: Analysts have retained their “overweight” stance on Malaysian banks, premised on potential re-rating catalysts of higher capital market-related income and improvement in net interest margins.
CGS International (CGSI) Research said in a report to clients that it also expects an increase in dividend payout ratios from the banking sector.
Potential sector downside risks are material deterioration in loan growth and asset quality, it said. In the report, the research house noted that the banking industry’s loan growth picked up strongly from 4.9% year-on-year (y-o-y) at end-February to 5.4% y-o-y at end-March.
The improvement primarily came from the business loan segment which expanded by 5.4% y-o-y, up from an expansion of 4.6%, it said, adding that this could have been lifted by the disbursement of some chunky corporate loans in March.
It also noted that household loan growth strengthened from 5.5% y-o-y to 5.8%.
An analyst told StarBiz that banking stocks remained the safest bet in the current volatile environment.
“The stocks may be volatile at times, in tune with the external markets, but the fundamentals as we know it remain strong,” he said.
In its report, CGSI Research noted that the banking industry’s total loans expanded by a swift 1.6% in the first quarter of this year (1Q26), translating to a strong annualised growth rate of 6.4% for 2026.
However, it believes the high loan growth in 1Q26 would not be sustainable, at least in the next two to three quarters, as it pointed out that an environment of high oil prices would result in more cautious investments by businesses and commitments for purchase of big-ticket items by consumers. As such, it is maintaining its loan growth projection of 4.5% to 5.5% for banks in 2026.
In its report, RHB Research noted that Bank Negara Malaysia’s March statistics saw a business loan pick-up – possibly on businesses drawing down working capital lines amid the Middle East war, and resulting higher energy and commodity prices.
While this has clouded near-term visibility, RHB Research thinks its impact is manageable due to built-up overlays and provision buffers.
It said it liked a mix of defensive banks such as Malayan Banking Bhd
and Public Bank Bhd to tide through the uncertainties and laggard banks such as CIMB Group Holdings Bhd, as macroeconomic worries from cost pressures wane.
It noted that in March, leading indicators continued to show positive momentum, with year-to-date system loan applications and approvals up 4% and 13% on a y-o-y basis.
In a similar vein, it was the business segment driving overall growth, with business loan applications up 8% (transport; storage and communications; and wholesale and retail trade, restaurants, and hotels) while approvals rose 26% y-o-y (transport, storage and communications; finance, insurance and business activities; and real estate) on a year-to-date basis.
“Year-to-date household loan applications and approvals, however, were broadly flat.
“We keep our 5% to 5.5% system loan growth for 2026,” said RHB Research.
It also said asset quality for the industry was stable, with the system gross impaired loan (GIL) ratio at 1.4%, but with absolute GIL up 3.9% and household and non-household GILs rising 4.3% and 3.5% y-o-y, respectively.
