HLBANK: Malaysian Banking Sector Upgraded to OVERWEIGHT on Strong 2026 Outlook
| Investment Bank | RHB Investment Bank |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
RHB Investment Bank has upgraded its sector call for the Malaysian banking industry to OVERWEIGHT from Neutral, driven by a robust outlook for 2026. This positive shift signals confidence in the sector’s fundamental strength, anticipated earnings rebound, and attractive dividend yields despite some near-term challenges.
Sector Performance and Future Outlook
The banking sector is expected to enter 2026 on a fundamentally sound footing, promising attractive dividend yields for investors. RHB projects a significant rebound in the sector’s 2026F Profit After Tax and Minority Interest (PATMI) growth to +5%, a notable increase from the +2% forecast for 2025F.
This positive trajectory is primarily attributed to easing Net Interest Margin (NIM) pressure, which is set to bolster Net Interest Income (NII) growth. Furthermore, credit costs are expected to stabilize at 20 basis points, contributing to overall financial health. The sector is anticipated to offer an attractive 2026F dividend yield of 5.8%.
Key themes for 2026 include a low interest rate regime, which is expected to stimulate loan demand, facilitate Current Account Savings Account (CASA) growth, enhance wealth management, and maintain asset quality, particularly benefiting banks with regional exposure such as Maybank and CIMB. Additionally, new capital frameworks from Bank Negara Malaysia (BNM) are expected to enable some banks, notably Public Bank and Hong Leong Bank, to unlock excess capital that could be returned to shareholders.
Near-Term Considerations
While the long-term outlook is positive, the sector is bracing for a “lacklustre” 3Q25 earnings season. This is largely due to the impact of July’s policy rate cut on domestic NIMs. However, non-interest income (non-II) is expected to provide a buffer, anchored by stronger wealth and markets-related fees, as well as robust treasury and investments income. RHB does not foresee any major asset quality issues, noting that recent completions of oil & gas corporate restructurings will pave the way for potential provision writebacks.
