PETALING JAYA : A robust economic outlook, high dividend yields with upside possibility, excellent asset quality, and superior geopolitical stability relative to neighbouring peers make Malaysian banks particularly attractive.
MBSB Research expects a “solid” first quarter ended March 31, 2026, from lenders, as the impact of the war on asset quality and growth remained relatively minor during the period.
“Expect recovery from deposit competition, as well as ongoing momentum in earnings, top line and loan growth,” it said.
The research house cited Bank Negara Malaysia’s banking statistics, noting that a surge in business loans would support overall loan growth.
However, it does not expect this momentum to persist in subsequent quarters as cost pressures are likely to intensify.
Maintaining its positive call on the banking sector, MBSB Research believes the possibility of special dividends and other forms of capital release remains high, although announcements may be delayed.
“While capital levels remain elevated and the Basel IV transition is expected to be capital-accretive in most cases, most banks are seeking greater certainty before pulling the trigger,” it added.
The research house noted that most banks were positive on net interest margin, guiding for expansion on the back of fixed deposit repricing and interest rate stability.
On the asset side, it expects more aggressive loan rebalancing in favour of higher- yielding business loans.
It also noted that wealth management, bancassurance, and debt capital markets are major drivers of fee income, especially as market performance, loan growth and economic sentiment improve.
“Foreign-exchange volatility aside, the stabilisation of interest rates should result in some moderation in investment income,” the research house added.
It noted that while it expects further tech efficiencies to come online, technology spending remains the primary drag for most banks.
Expect further rapid operating expenditure growth among smaller, fast-growing banks, according to MBSB Research.
It also maintained a neutral view on loan growth.
“Business loans have been dwindling as of late, as working capital continues to weaken, particularly in the small and medium enterprise segment, while retail loan growth has been on a downward trajectory for several years,” it noted.
“For the most part, banks are not guiding for particularly strong local growth either, especially the larger banks.”
MBSB Research noted that in upcoming briefings by lenders, it will be looking for clarity on asset quality and provisioning impacts, as well as renewed loan growth and cost-cutting strategies.
To mitigate the impact on the public, inflationary and cost-of-living pressures must be managed, it said.
“Alongside fuel subsidies, we foresee the likelihood of further economic aid packages and some probability of overnight policy rate cuts to manage cost pressures and stimulate growth.
“At the same time, these initiatives must be funded from elsewhere – we are already seeing budget cuts, and there is a small likelihood of a prosperity tax (though this would more likely target non-bank sectors).”
“While there are headwinds, the banking sector remains a solid defensive play,” the research house added.
