PETALING JAYA: The banking system’s loans continued to expand at a steady pace in April 2026, rising 5.6% year-on-year (y-o-y) and 1.8% year-to-date, broadly tracking Kenanga Research’s expectations of 5% growth in 2026.
While asset quality remains stable for now, the research house said banks are taking a cautious stance as they monitor potential spillover risks from sustained high oil prices and inflationary pressures that could begin to weigh on borrower repayment trends in the coming quarters.
“Most banks refrained from proactively increasing provisions over the recent first quarter of financial year 2026 (1Q26) reporting season, citing that it remains too early to fully assess the impact of elevated fuel prices on repayment behaviour, as deterioration could only possibly be more apparent in 2Q26,” it said in a recent report.
However, the research house said collective loan loss coverage across its coverage universe (89.8%) remains above the industry level (83%), suggesting that listed banks are generally better provisioned and potentially lower risk.
“Several banks have also retained management overlays set aside during 2025’s Liberation Day tariff concerns, which could be drawn on if inflationary pressures intensify,” Kenanga Research said, adding that it continues to expect the overnight policy rate (OPR) to remain unchanged at 2.75% throughout 2026.
The research house mantained its “overweight” stance on the banking sector, but said the the coming months will be crucial for assessing the sector’s health, particularly in relation to gross impaired loan ratios, which, if they creep up, could signal higher provisioning needs for banks.
Meanwhile, Hong Leong Investment Bank (HLIB) Research noted that while leading indicators point to a potential tightening in credit conditions and deposit growth has moderated to 3.4%, substantial management overlays, along with Bank Negara Malaysia’s RM5bil small and medium enterprise (SME) relief facility, continue to provide sufficient buffers.
The research house kept its “overweight” stance on the sector, favouring CIMB Group Holdings Bhd
and AMMB Holdings Bhd for their undemanding valuations and defensive dividend yields amid near-term macro headwinds.
HLIB Research said net interest margins (NIMs) may have shown signs of a structural turnaround, as industry interest spreads widened by two basis points (bps) month-on-month to 2.39% in April.
“This expansion was driven by a five bps decline in the cost of funds to 2.14%, which more than offset a slight compression in asset yields to 4.53%.
“This trend suggests that high-cost fixed deposits have been successfully repriced following last July’s OPR cut, paving the way for normalisation in NIM,” HLIB Research said.
On loan growth momentum, it said this was driven by elevated corporate working capital requirements alongside sustained investment-related drawdowns.
Deposit growth, on the other hand, continued to moderate, slowing to 3.4% y-o-y, weighed down by softer current account and savings account growth and a further slowdown in foreign currency deposits.
