RHB
Malaysia Sector Update
Financial Services | Banks
Financial Services | Banks
14 August 2025
Banks
2Q25 Preview: Non-II, Dividends To Carry
- Top Picks: Malayan Banking, Hong Leong Bank (HLBK) and CIMB. In the upcoming Jun 2025 quarter reporting period, we think the sector may post low- to mid-single digit sequential growth in reported PATMI thanks to stronger operating income (non-II led, NII likely mixed) and associates, but credit cost could rise on the absence of chunky writebacks, rather than asset quality pressures. With growth expectations already reset lower, we are not expecting major PATMI downgrades but highlight possible downside risks to loans growth and NIM guidance. Most banks are set to announce interim dividends too, which we see driving near-term sector outperformance.
- Another non-II-led quarter? Based on our channel checks, we think sector loans growth could show a deceleration from the +7% YoY print in 2Q24, consistent with the slower banking system figure (Jun 2025: +5% YoY vs Jun 2024: +6% YoY with some banks citing slower drawdowns from non-retail due to tariff uncertainties) and FX impact. While domestic NIM could likely expand QoQ partly helped by the SRR cut and banks frontrunning July’s OPR cut, NIM from overseas operations should see continued pressure from falling benchmark rates and tight liquidity conditions. On the other hand, declining bond yields (2Q25 average MGS 10-year yield down c.20bps QoQ) is positive for trading gains, while market volatility and uncertainty should benefit FX and hedging activities. We think these could compensate for any weakness from lower loan and wealth-related fees.
- No major cost surprises expected. While individual opex trends will likely be mixed, we expect banks to exercise tight opex discipline amid tougher conditions to grow topline. On asset quality, first-order impacts from the US tariffs appear contained and there has been no major tariff-related asset quality issues observed. That said, sector credit cost is expected to rise QoQ, as highlighted above. Expected credit loss model refreshes will likely incorporate softer GDP growth expectations, though we do not expect the impact to be significant. Lastly, while provision buffers appear adequate, we do not discount the possibility of banks adding to pre-emptive provisions out of precaution – Affin and AMMB stand out for having sub-peer LLC levels, though both banks retain some degree of overlay balances still.
- Dividends. We expect the December and June FYE banks to declare interim dividends that translate to yields of 2.3-2.9%. Affin (4Q payout) and BIMB (3Q and 4Q payouts) are the exceptions. We are also watching out for banks’ progress on capital build up as a softer loans growth print could free up some room for capital returns. CIMB continues to reaffirm its stance that excess capital will be returned to shareholders.
- HLBK and Public Bank (PBK) should see a QoQ rebound in PATMI. For HLBK, the absence of last quarter’s lumpy dilution loss coupled with its optimism on loans growth and non-II are drivers while for PBK, overlay write-backs are a possible driver. That said, PBK needs earnings to catch-up after a muted set of 1Q25 results. On the other hand, MBSB’s recalibration of its underwriting standards is a near-term negative for loans growth but this should be largely done by 2Q25.
Stocks Covered
Rating (Buy/Neutral/Sell): 3/5/0
Last 12m Earnings Revision Trend: Negative
Top Picks & Target Price
Malayan Banking (MAY MK) – BUY: MYR10.90
Hong Leong Bank (HLBK MK) – BUY: MYR24.30
CIMB (CIMB MK) – BUY: MYR8.40
Analysts
Nabil Thoo
+603 2302 8123
nabil.thoo@rhbgroup.com
David Chong CFA
+603 2302 8106
david.chongvc@rhbgroup.com
Sector ROA and ROE trends
| Year | Sector ROA | Sector ROE (RHS) |
|---|---|---|
| 2019 | 1.00% | 9.9% |
| 2020 | 0.52% | 5.1% |
| 2021 | 0.95% | 7.4% |
| 2022 | 0.97% | 9.8% |
| 2023 | 1.05% | 10.7% |
| 2024F | 1.07% | 10.9% |
| 2025F | 1.06% | 10.8% |
| 2026F | 1.06% | 10.9% |
Source: Company data, RHB
| Company Name | Rating | Target (MYR) | % Upside (Downside) | P/E (x) Dec-25F | P/B (x) Dec-25F | ROAE (%) Dec-25F | Yield (%) Dec-25F |
|---|---|---|---|---|---|---|---|
| Affin | Neutral | 2.45 | 2.1 | 12.3 | 0.5 | 4.1 | 3.2 |
| AMMB | Neutral | 5.50 | 0.2 | 9.3 | 0.9 | 9.4 | 5.6 |
| BIMB | Neutral | 2.30 | (0.4) | 9.7 | 0.7 | 7.0 | 6.2 |
| CIMB | Buy | 8.40 | 16.8 | 9.8 | 1.1 | 11.1 | 5.6 |
| Hong Leong Bank | Buy | 24.30 | 23.4 | 9.0 | 1.0 | 11.2 | 4.0 |
| Malayan Banking | Buy | 10.90 | 10.5 | 11.5 | 1.2 | 10.9 | 6.3 |
| MBSB | Neutral | 0.67 | (4.3) | 12.2 | 0.6 | 4.8 | 5.7 |
| Public Bank | Neutral | 4.75 | 7.0 | 11.6 | 1.4 | 12.7 | 5.2 |
Source: Company data, RHB
Guidance and Targets
Figure 1: MY Banks – sector guidance for 2025
| YoY loans growth (%) | NIM (%) | CIR (%) | Credit costs (bps) | ROE (%) | Dividend payout (%) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1Q25A | FY25F | 1Q25A | FY25F | 1Q25A | FY25F | 1Q25A | FY25F | 1Q25A | FY25F | 1Q25A | FY25F | |
| Affin | 7.1 | 12.0 | 1.47 | 1.55 | 69.7 | 65.0 | 10^ | 12^ | 4.0 | 6.0 | na | na |
| AMMB* | 12.0 | Mid-single digit | 1.94 | na | 44.6 | na | 16 | <30 | 10.0 | na | 50 | >50 |
| BIMB | 6.0 | 7.8 | 2.06 | >2.0 | 60.9 | na | 45 | na | 7 | >7.5 | na | 60 (of Bank-level PAT) |
| CIMB | 1.8 | 5-7 | 2.16 (-5bps vs FY24) | Flat-to-5bps squeeze | 46.9 | <46.7 | 26 | 25-35 | 11.4 | 11-11.5 | na | 55 |
| Maybank | 3.2 | 5-6 | 2.04 (-1bp vs FY24) | Flat | 48.5 | <49 | 23 | <30 | 11.3 | >11.3 | na | na |
| MBSB | -0.7 | 5-6 | 2.1 | 2.0 | 61.7 | <53 | na | na | 3.6 | 5-6 | na | 90 |
| Public Bank | 6.1 | 5-6 | 2.19 | Mid-single digit squeeze | 35.0 | na | 4 | Single digit | 12.4 | c.13 | na | 60 |
Note 1: *1Q25A and FY25F refer to FY25A and FY26F
Note 2: ^refers to gross credit cost ie excluding recoveries
Source: Company data, RHB
Figure 2: Hong Leong Bank – management guidance and financial targets for FY06/25
| FY24 achieved | 9MFY25 achieved | FY25 targets | Comments | |
|---|---|---|---|---|
| Reported core ROE | 11.8% | 11.6% | c.12% | We see scope for HLBK’s full-year loans growth print to come in at the higher end of management’s range – if not exceed – judging by management’s optimism on non-retail loans growth (SMEs in manufacturing, E&E among others), while retail loans growth also chugged along nicely.
SRR relaxation and frontrunning of July’s OPR cut could allow HLBK’s NIM to come in at the higher end of the guided range. No major concerns as HLBK’s exposure to tariff-exposed customers and sectors is small, albeit such customers and sectors will be monitored closely. Despite LLC falling to 95% in the previous reporting quarter, management is comfortable with its asset quality position. That said, the strong loans growth will require provisions on originations, and as such, we think a credit cost charge is more likely than a writeback. Management saw decent CASA build-up in 4QFY25 from both retail and non-retail customers. The launch of its new transaction banking platform in FY26F should help with further non-retail CASA traction. |
| Gross loan growth | 7.3% | 7.2% | 6-7% | |
| NIM | 1.86% | 1.90% | 1.85-1.95% | |
| CIR | 40.5% | 38.8% | c.40% | |
| GIL | 0.57% | 0.57% | <0.65% | |
| Core net credit cost | -6bps | 1bp | <10bps | |
| CASA mix | 30.8% | 30.6% | >30% |
Source: Company data, RHB
Figure 3: Interim dividend expectations
| 1H24 DPS (sen) | 1H24 payout | 1H25 DPS (sen) | 1H25 payout | 1H25 yield | Comments | |
|---|---|---|---|---|---|---|
| Affin | Nil | Nil | Affin only divvies in 4Q | |||
| BIMB | Nil | Nil | BIMB only divvies in 3Q and 4Q | |||
| CIMB | 27 | 74.6% | 20.3 | 55% | 2.8% | 1H24 includes 7 sen special DPS. Ordinary interim DPS and payout ratio were 20 sen and 55% respectively. |
| HLBK* | 43 | 42% | 46 | 47% | 2.3% | If correct, our EPS and DPS assumptions imply a 36% full-year payout ratio, an expansion from the 33% paid out in FY24. Management had previously stated that it intends to gradually raise its payout ratio to 40% |
| MAY | 29 | 70% | 29 | 69% | 2.9% | Stable interim DPS expected with slightly higher DPS projected in 4Q25 in tandem with slight earnings growth. |
| MBSB | na | na | 1.6 | 70% | 2.3% | Management intends to pay dividends on 1H25 earnings, but timing may be subject to approvals. Our unofficial 1H25 DPS assumes c.MYR100m 2Q25 net profit and a conservative 70% payout ratio (vs management’s unofficial 90% guidance) |
| PBK | 10 | 56.5% | 11.1 | 60% | 2.5% | 1H25 DPS growth combination of earnings growth and higher dividend payout ratio |
Note: *1H24 and 1H25 DPS for HLBK refers to 2HFY06/24 and 2HFY06/25 respectively
Source: Company data, RHB
Sector Earnings Forecasts
Sector earnings growth to moderate to 3% YoY in FY25F before a mild recovery to 5% YoY in FY26F
Figure 4: MY Banks – sector earnings and key assumptions
| (MYRm) | 2022 | 2023 | 2024 | 2025F | 2026F |
|---|---|---|---|---|---|
| NII | 60,736 | 58,323 | 61,021 | 63,084 | 65,629 |
| NII growth (%) | 8.4% | -4.0% | 4.6% | 3.4% | 4.0% |
| Loan growth (%) | 7.0% | 7.5% | 5.2% | 5.2% | 5.0% |
| NIM (%) | 2.37% | 2.12% | 2.09% | 2.07% | 2.05% |
| Fee income | 9,256 | 9,703 | 10,533 | 10,842 | 11,773 |
| Other income | 6,177 | 10,140 | 12,242 | 13,499 | 14,317 |
| Non-interest income | 15,433 | 19,843 | 22,774 | 24,340 | 26,089 |
| Non-II growth (%) | -5.7% | 28.6% | 14.8% | 6.9% | 7.2% |
| Total operating income | 76,169 | 78,167 | 83,795 | 87,424 | 91,718 |
| Operating income growth (%) | 5.2% | 2.6% | 7.2% | 4.3% | 4.9% |
| Non-II/Total income (%) | 20.3% | 25.4% | 27.2% | 27.8% | 28.4% |
| Operating expenses | (33,290) | (35,894) | (38,705) | (40,283) | (42,331) |
| Opex growth (%) | 3.5% | 7.8% | 7.8% | 4.1% | 5.1% |
| CIR (%) | 43.7% | 45.9% | 46.2% | 46.1% | 46.2% |
| PIOP | 42,879 | 42,273 | 45,090 | 47,141 | 49,387 |
| PIOP growth (%) | 6.6% | -1.4% | 6.7% | 4.5% | 4.8% |
| Total impairment charges | (6,491) | (4,560) | (3,567) | (
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