PETALING JAYA: The banking sector is expected to sustain healthy loan growth into the rest of 2026, supported by firm household and business credit demand and resilient funding conditions.
However, valuation upside could remain limited as foreign outflows and portfolio repositioning weigh on investor sentiment ahead of changes to the benchmark index.
TA Research is maintaining its 2026 loan growth target at 5.3%, comprising 5.3% growth in household loans and 5.4% in business loans, while retaining its “neutral” stance on the banking sector.
“For now, we reaffirm our 2026 loan growth target, driven by household loan and business loan growth,” it said.
The research house said the sector’s operating outlook remained broadly supportive, underpinned by steady loan growth, resilient non-interest income, stable asset quality and strong capital and liquidity buffers.
“Key downside risks to our sector outlook include further net interest margin (NIM) compression, a deterioration in asset quality, and slower-than-expected loan growth,” TA Research said.
“These risks could be exacerbated by escalating geopolitical tensions, weaker economic activity and softer business sentiment, which may ultimately weigh on credit demand and earnings growth across the sector,” it noted.
Furthermore, TA Research said valuations are likely to remain constrained by continued foreign fund outflows, uninspiring interim dividends and portfolio repositioning ahead of the expanded FBM KLCI 50 benchmark in December 2026.
This could result in lower weightings for several large-cap banks, potentially limiting near-term share price catalysts despite a relatively supportive earnings environment.
Against this backdrop, TA Research reiterated its “hold” calls on Malayan Banking Bhd
, CIMB Group Holdings Bhd, Public Bank Bhd, Hong Leong Bank Bhd, RHB Bank Bhd and AMMB Holdings Bhd, while maintaining “buy” recommendations on Alliance Bank Malaysia Bhd and Affin Bank Bhd.
TA Research said Alliance Bank remains its top sector pick, backed by industry-leading loan growth, superior asset quality and a resilient funding profile.
Gross loans at the bank expanded 9.5% year-on-year (y-o-y), significantly ahead of the industry average of around 5%, enabling it to continue gaining market share.
Its net credit cost also fell sharply to an exceptionally low 0.3 basis points from 14.4 basis points a year earlier, largely driven by strong recoveries from its corporate portfolio. Meanwhile, its 37.7% current account savings account (Casa) ratio provides a stable, relatively low-cost funding base.
“We believe this positions the bank well to withstand ongoing deposit repricing pressures and potentially better preserve its NIM,” TA Research said.
Meanwhile, one analyst pointed out that the banking sector appeared to be on a relatively firm footing for the second half of financial year 2026.
“Loan demand shows enough resilience to support earnings growth despite a more challenging funding environment,” he explained.
Bank Negara Malaysia data showed system-wide loans grew 5.6% y-o-y, or 0.5% month-on-month, in July 2026, ahead of the research house’s 5.3% full-year forecast, compared with 4.8% growth in 2025.
Business loans led the improvement, rising 6.4% y-o-y, while household loans grew 5%. Year-to-date, total loans increased 3.3%, compared with 2.5% in July 2025.
Asset quality remained resilient despite impaired loans rising 4.8% y-o-y, with the gross impaired loan ratio unchanged at 1.4%.
Deposit growth also strengthened, with total deposits rising 4.6% y-o-y, while Casa balances grew 7.5%, lifting the Casa ratio to 32.2% from 31.3% a year earlier.
