Banking Sector Set For Earnings Rebound In 2H 2025, Says HLIB Research

Samuel Chua

9th June 2025 - 3 min read

The banking sector is expected to see stronger earnings momentum in the second half of 2025, following a modest performance in the first quarter. According to Hong Leong Investment Bank Bhd (HLIB Research), the first quarter earnings season was broadly in line with expectations, with only Bank Islam Malaysia Bhd missing estimates due to higher credit costs.

The other seven banks under HLIB’s coverage, comprising Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd, Public Bank Bhd, and RHB Bank Bhd, delivered results that were closely aligned with forecasts. Sector earnings rose by 4.1% on a year-on-year basis, supported by lower loan impairment provisions. However, earnings declined by 3.4% quarter-on-quarter due to a sequential increase in credit charges.

HLIB Research forecasts sector earnings for the financial years 2024 to 2026 to grow at a two-year compound annual growth rate of 3.4%. It expects net interest margins in the second quarter of 2025 to remain reasonably stable on a sequential basis. The firm identified three key factors supporting this outlook: fresh liquidity from the recent statutory reserve requirement cut, easing deposit competition, and a sector-wide shift towards more disciplined loan expansion and funding strategies.

This shift is already visible, with banks reducing promotional and campaign fixed deposit rates by five to 15 basis points in May, in anticipation of a possible cut to the Overnight Policy Rate. However, HLIB noted that the full margin benefit of these moves may only be realised in the second half of the year.

(Image: Bernama)

Beyond margin considerations, HLIB Research expects asset quality to remain solid, supported by resilient domestic economic conditions and minimal exposure to trade with the United States. While it acknowledged the risks posed by secondary effects of global trade uncertainty, the firm believes any potential weakness will be well-contained.

It highlighted the banking sector’s significantly improved resilience compared to previous downturns, attributing this to the “fortress of provisions” built up over the past five years. These provision buffers, it said, offer robust protection and are capable of absorbing shocks, helping to maintain the gross impaired loan ratio near historical lows.

Maintaining its “Overweight” stance on the sector, HLIB Research views the KLFIN Index’s year-to-date decline of 7.0% as a tactical opportunity for accumulation ahead of a potential recovery later in the year. Its top picks include CIMB, with a target price of RM8.80 per share, as well as AmBank and RHB, with target prices of RM6.20 and RM7.70 respectively.

(Source: NST)

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