PETALING JAYA: Analysts expect the banking sector’s earnings growth for first quarter ended March 31, 2026 (1Q26) to remain resilient and largely insulated from the conflict in the Middle East that intensified in March.
“We anticipate steady bottom-line performance, underpinned by firm loan growth as corporates demand for working capital amidst stabilising margins,” Hong Leong Investment Bank (HLIB) Research said.
“Overall, we believe that the sector’s fundamentals remain intact, supported by healthy non-interest income (NOII) contributions and stable bond yields,” it told clients in a report.
HLIB Research said it expected sectoral earnings to grow by 2% to 4% quarter-on-quarter and 7% to 9% on a year-on-year, driven primarily by easing net interest margin pressure as ongoing repricing efforts take effect.
The impact of expensive fixed deposits has begun to diminish since December 2025, paving the way for stronger net interest income, it said.
The research house added that this momentum is further aided by robust bank loan growth and a consistently strong NOII performance, signalling a positive shift in operational efficiency heading into the mid-year.
An analyst told StarBiz he remained confident about the banking sector’s upcoming results, despite the global tensions.
“First, Malaysia’s banking system is not at all overly exposed to the Middle East, secondly, its capital buffers are very strong,” he said.
HLIB Research said it anticipated that only Alliance Bank (M) Bhd and AMMB Holdings Bhd
(AmBank) will declare final dividends this quarter.
“Having declared interim dividends of 9.37 sen and 12.5 sen respectively in the first half of the year, we project final distributions of 10 sen to 11 sen for Alliance and 20 sen to 22 sen for AmBank,” it further said.
It added that these forecasts aligned with its full-year payout assumptions of 44% and 55% of estimated earnings respectively. HLIB Research said while the small and medium enterprise (SME) segment faces a clouded outlook due to energy supply shocks from the Iran war, it reckoned that the impact should remain manageable.
“Banks under our coverage maintain a healthy average loan loss coverage of 128% and average gross impaired loan (GIL) ratio of 1.4% as of December 2025, providing a significant buffer.
“Historical data supports this resilience; as noted in our strategy report on April 3, previous episodes of high oil prices (more than US$101 per barrel ) did not trigger a significant upswing in the sector’s GIL ratio.”
Furthermore, tepid take-up of Bank Negara Malaysia’s RM5bil financing facility suggested that immediate financial distress among SMEs is currently contained, it added.
HLIB Research, which maintained its “overweight” call on the banking sector, also said on a sequential basis, the potential downside risks are well-buffered by substantial management overlays retained from previous quarters.
“We estimate that unutilised provisions originally earmarked for trade-war contingencies can be reallocated to cushion any uptick in net credit costs during the second half of the year,” the research house said.
“Additionally, SME portfolios remain well-diversified across various sectors, offering an extra layer of structural resilience.
“Consequently, we view the net impact on bottomline performance as largely neutral, though we acknowledge a slight downside bias should macroeconomic conditions deteriorate further.”
