PETALING JAYA: Malaysian banks could see an earnings boost from a potential interest rate increase, as stronger economic growth raises the prospect of Bank Negara Malaysia (BNM) reversing its pre-emptive rate cut last year, although intensifying deposit competition could limit the upside to margins.
BIMB Securities Research and Hong Leong Investment Bank (HLIB) Research highlighted the potential benefits of a 25-basis-point (bps) increase in the overnight policy rate (OPR), but differed on its timing and the extent to which it could improve the banking sector’s investment appeal.
BIMB Securities expects BNM to maintain the OPR at 2.75% at its Monetary Policy Committee meeting today, citing relatively benign inflation despite stronger economic growth.
However, HLIB Research sees growing justification for a rate normalisation in the first half of 2027, likely towards the later part of the period, as the economy has proven more resilient than initially anticipated.
It expects a 25-bps increase to restore the OPR to 3%, its level before the July 2025 cut, rather than signal the start of a broader monetary tightening cycle.
Both research houses expect banks to benefit initially as lending rates adjust faster than deposit costs, providing a temporary boost to net interest margins (NIMs).
BIMB Research estimates that a 25-bps OPR increase would lift banking sector earnings by an average of 3% and expand NIMs by approximately four bps.
Alliance Bank Malaysia Bhd
and AMMB Holdings Bhd are expected to be the biggest beneficiaries, with their net profits projected to increase by 4.2% and 3.5%, respectively. Malayan Banking Bhd and CIMB Group Holdings Bhd would see more modest improvements of 1.4% each.
Bank Islam Malaysia Bhd (BIMB) has emerged as the biggest beneficiary in HLIB Research’s analysis, with an estimated 6.2-bps NIM improvement and 9.3% earnings uplift. However, HLIB Research cautioned that the benefits could prove less sustainable as banks compete more aggressively for deposits. “We view OPR normalisation as an incremental earnings tailwind rather than a standalone sector re-rating catalyst,” it said.
On valuations, BIMB Research maintains a positive stance on the sector, citing healthy loan growth, contained provisioning and attractive dividend yields. It estimated average dividend yields of 5.7% for financial year 2026 (FY26) and 6.6% for FY27.
HLIB Research, meanwhile, maintained a “neutral” sector call, noting that banks trade at 1.08 times forward price-to-book value, broadly in line with their five-year average. It upgraded RHB Bank Bhd to “buy” from “hold”, with a higher target price of RM8.40, citing its potential capital returns and estimated dividend yield of about 7% for 2027 and 2028.
