PETALING JAYA: While banks are setting aside more provisions as a precaution against external uncertainties, significant deterioration in credit quality is not expected, and the move reflects prudent risk management rather than concerns over a sharp weakening in the broader economy.
Rakuten Trade head of equity sales Vincent Lau said the banking sector’s earnings performance for the first quarter of 2026 (1Q26) was “satisfactory”.
Lau noted given the prolonged period of elevated oil prices and related cost pressures, some banks may choose to take a more pre-emptive approach by increasing provisions and the market “should have a clearer view in the next quarter”.
“Importantly, key asset quality indicators remain under control.
“Gross impaired loan ratios are still manageable, and we have not seen a significant rise in late repayments. Banks are simply being prudent at this stage.
“While banks may increase provisions, it should not be interpreted as a sign that economic conditions are deteriorating, as labour market conditions remain healthy,” he told StarBiz.
Most banks have maintained their 2026 guidance despite the Middle East conflict.
To this end, Lau said he does not expect banks to revise their growth targets this year, unless higher oil prices and supply-chain disruptions continue to persist in the second quarter, something that he does not expect to happen.
“Currently, President Donald Trump appears to be restrained in this conflict.
“Hence, if the Middle East tensions clear up, the outlook for the sector will be better. As it is, loan growth is at around 4% now, which is quite decent, and the unemployment rate also remains low,” he said.
RHB Research said while sector earnings growth post-adjustments is not too exciting, valuation is decent and dividend yield looks attractive.
“Of the nine local banks under our coverage, six posted results that broadly met our and consensus expectations while Malayan Banking Bhd
(Maybank), Bank Islam Malaysia Bhd (BIMB) and MBSB Bank Bhd missed estimates.
“The negative variances were due to weaker-than-expected non-II (Maybank and BIMB), while MBSB’s earnings miss was caused by lower-than-expected net interest margin (NIM) and higher-than-expected credit cost.
“On dividends, payouts by Alliance Bank Malaysia Bhd and AMMB Holdings Bhd were in line with expectations, at 40% and 55%, respectively,” the research house said in a report yesterday.
RHB Research said banks generally retained their 2026 guidance on expectations that the Middle East situation and high energy prices would not persist.
The research house said loan and investment bank pipelines are healthy and a resolution in the near term should be positive for deal execution and help banks narrow the gap to their targets and guidance in the coming quarters.
“The 2Q26 period appears to be a better quarter sequentially as marked-to-market losses suffered in 1Q26 stabilise, while some banks saw improved investor sentiment and wealth traction.
“Also, some banks see opportunities to reprice deposits lower in 2Q26 to help support NIM.
“On asset quality, gross impaired loans seem to have normalised post-quarter end, which would help ease pressure on credit cost and support comments that the rise in 1Q26 was seasonal,” the research house said.
RHB Research maintained an “overweight” call on banks, with top picks being Public Bank Bhd, Maybank and AMMB, with target prices of RM5.45, RM12.20 and RM7.30, respectively
Meanwhile, Hong Leong Investment Bank (HLIB) Research said while loan growth remained surprisingly resilient in 1Q26, it believes this was partly driven by corporates front-loading financing needs to build inventory buffers, secure raw material supplies and support working capital requirements amid cost inflation and supply chain disruptions.
“At the same time, businesses may continue drawing on bank facilities to manage longer payment cycles and preserve liquidity as operating conditions become increasingly uncertain.
“As such, we expect loan demand to remain reasonably healthy in the near term, although growth momentum could moderate should macroeconomic conditions weaken further,” the research house said, adding that it still maintains a “cautiously constructive stance” on the sector.
HLIB Research maintained an “overweight” call on the sector, favouring CIMB and AMMB, with target prices of RM9.80 and RM7.70 respectively for their “undemanding valuations and superior dividend visibility”.
