PETALING JAYA: The banking sector’s valuations remain compelling, while offering attractive dividend yields of 6% to 7% that will continue to provide support for the banking stock prices, analysts say.
In a note to clients, BIMB Research expects the banking system’s gross impaired loan (GIL) ratio to stay largely stable, with only a marginal increase, if any.
Similarly, loan loss provisions are unlikely to rise significantly, given that Brent crude oil prices have retreated below US$80 (RM327) per barrel from previous levels exceeding US$100, following the 60-day ceasefire agreement between the United States and Iran and growing prospects for a longer-term resolution.
In addition, banks continue to hold pre-emptive provisions established last year to cushion against potential risks arising from the US tariff measures.
“These provisions could be reallocated, if necessary, to absorb any credit risks stemming from the United States-Iran situation, thereby limiting the need for a substantial increase in provisioning.”
On the newly released May 2026 banking statistics by Bank Negara Malaysia (BNM), the brokerage noted bank lending growth continued to improve, rising to 5.7% year-on-year (y-o-y) from 5.6% in April.
This has been driven mainly by stronger non-household lending, particularly among non-small and medium enterprise (SME) borrowers and demand for working capital financing.
Deposit growth strengthened to 4.4% y-o-y, led by faster current account and savings account (Casa) growth, lifting the Casa ratio to 31.1%.
Capital position also remained robust, with common equity tier one (CET1) and total capital ratios of 14% and 17.5%, respectively.
BIMB Research maintained a positive rating on the banking sector with a “buy” call on MBSB Bhd
.
In a recent report, RHB Research said it is “overweight” on the sector as the leading indicators were supportive of loan growth.
Its top picks are Public Bank Bhd, Malayan Banking Bhd and AMMB Holdings Bhd.
RHB Research also highlighted that BNM’s May 2026 statistics showed the system loan growth inching higher to 5.7% y-o-y supported by continued strength in the non-household segment and resilient household loan growth.
Asset quality also remained manageable despite a slight uptick in GIL, while liquidity and capital buffers stayed healthy, with liquidity coverage ratio and CET 1 ratio still comfortably above regulatory requirements.
Hong Leong Investment Bank Research downgraded the sector to a “neutral” from “overweight”, given the absence of catalysts amid brewing SME headwinds and potential index-related overhangs.
The system loan growth remained broadly stable in May 2026, underpinned by stronger business lending momentum, although softer applications suggest some moderation ahead.
The deposit growth improved, supported by Casa and foreign inflows, while asset quality remained manageable but faces emerging SME and inflationary risks.
An analyst with a local bank-backed brokerage said that there were potential overhang concerns for the sector stemming from the planned expansion of the FBM KLCI from 30 to 50 constituents, alongside a plausible 10% company-level weight capping.
“By our estimates, the banking sector would see the largest weight reduction (of about 623 to 699 basis points) with FBM KLCI’s expansion,” the analyst added.
