AFFIN: Banking Group Delivers In-Line Earnings, Surprises with Higher Dividend Payout

A leading banking group has announced its latest financial results, reporting an in-line performance for the fourth quarter of fiscal year 2025 (4Q25) and the full year, with net profit aligning closely with analyst expectations. Despite a softer operational quarter, the group delivered a positive surprise to shareholders through a significantly higher-than-expected final dividend per share, underpinned by an increased payout ratio assumption. Investment bank RHB has maintained its ‘Neutral‘ rating on the stock, adjusting its target price upward to MYR2.60.

Performance Review

For 4Q25, the banking group recorded a net profit of MYR128 million, a decrease of 12% quarter-on-quarter and 6% year-on-year. Cumulatively, the full-year 2025 PATMI (Profit After Tax and Minority Interest) reached MYR540 million, marking a 6% increase year-on-year. This performance was largely in line with both RHB‘s and consensus full-year forecasts, achieving 98% and 97% respectively. The group’s FY25 Return on Equity (ROE) stood at 4.5%, slightly below its 4.8% target. A notable highlight was the declaration of a final dividend per share (DPS) of 8.53 sen, representing a 40% payout ratio. This exceeded RHB‘s earlier forecast of 6.5 sen based on a 30% payout assumption, with the option for shareholders to reinvest the entire dividend into new shares.

Operational Strength and Efficiency

The group’s operating income demonstrated robust growth in 4Q25, rising 18% quarter-on-quarter and 24% year-on-year. This was driven by strong contributions from both Net Interest Income (NII), which grew 13% QoQ and 15% YoY, and non-interest income (non-II), soaring 30% QoQ and 53% YoY. Loan growth remained robust at 10% year-on-year, surpassing its 8% target. The Net Interest Margin (NIM) also improved by 2 basis points quarter-on-quarter, primarily due to a strategic reset in its Current Account Savings Account (CASA) approach and the repricing of deposits following earlier policy rate adjustments. Asset quality also trended positively in 4Q25, with Gross Impaired Loans (GIL) declining 8% QoQ and 7% YoY, aided by corporate recoveries. Loan Loss Coverage (LLC) improved to 74.1%.

Strategic Adjustments and Challenges

Despite overall positive trends, the group faced some strategic adjustments. Its CASA ratio slipped to 25.3% from 30.4% in 2024, as management adopted a more selective approach, prioritizing low-cost and sticky operational and payroll accounts. This led to a higher Loan-to-Deposit Ratio (LDR) of 99.4% compared to 96.1% a year ago. Management also acknowledged potential softness in the SME segment due to tariff uncertainties, though overall domestic economic performance is expected to be supportive.

Future Outlook and Analyst Perspective

Management has introduced ambitious guidance for 2026, targeting a rise in ROE to 5%, supported by stronger NII from 10% loan growth and a 10bps NIM expansion. The positive business momentum observed in 4Q25 is expected to continue into 2026. The bank’s dividend payout policy is affirmed at 40-60%, with an intention to retain the dividend reinvestment programme. Reflecting these updates, RHB has revised its FY26F-27F PATMI forecasts upward by 7% and 3% respectively, driven by improved loan growth and non-II prospects. Consequently, FY26-27F DPS forecasts have also been significantly increased by 43% and 37%, incorporating the higher 40% payout assumption. RHB maintains its ‘Neutral‘ rating and has raised its target price to MYR2.60 from MYR2.40. This adjustment primarily stems from an update to the risk-free rate assumption, aiming for alignment with peers, and includes an unchanged 4% ESG premium.