At a time of ongoing geopolitical uncertainties and market volatility, according to RHB Research, banks continue to offer a safe haven for investors, supported by strong earnings and attractive dividend yields. The research firm highlighted these factors as key contributors to the sector’s resilience, reinforcing its appeal to investors seeking stability during uncertain times.

Upon discussions with local banks, RHB Research reported that the outlook for 2025 suggests a modest yet stable year. Banks remain cautious about external risks but are optimistic about domestic growth prospects. While geopolitical uncertainties persist, most banks expressed confidence in Malaysia’s economic landscape, where domestic loan growth is expected to drive expansion, particularly for banks with overseas operations.

According to the research house, a resilient gross domestic product, alongside the continued implementation of various development plans, is anticipated to support loan demand. However, deposit growth continues to lag behind loan growth, raising concerns over potential competition for deposits to meet funding requirements. 

For banks with international exposure, RHB Research pointed to risks arising from expected rate cuts and tightening liquidity conditions, which could place pressure on net interest margins (NIM). The research firm also noted that banks remain cautious regarding NIM, particularly in response to tightening liquidity both domestically and abroad, with guidance generally pointing to either stable margins or a slight decline.

Looking ahead, RHB Research has raised its sector net profit forecasts for the financial years 2025 and 2026 by 1% to 2% following the latest financial results. It anticipates sector-wide profit after tax and minority interest to grow by 6% in 2025, driven by a corresponding 6% increase in operating income and a slight positive ‘Jaws ratio’. However, this growth is expected to be partially offset by higher credit costs, with fewer overlay reversals to mitigate the impact. The research firm projected that overall asset quality would remain stable, although banks continue to monitor specific risk segments, particularly lower-income households and small and medium enterprises, given the upcoming rationalisation of RON95 subsidies.

RHB Research further observed that banks have outperformed regional peers, particularly within the domestic market. Year-to-date, the sector has remained flat, in contrast to the FBM KLCI and FBM100, which have declined by 6% and 8%, respectively. The research firm reiterated its “overweight” rating on the sector and identified AMMB Holdings Bhd, CIMB Group Holdings Bhd, Alliance Bank Malaysia Bhd, and Hong Leong Bank Bhd as its top investment picks.

Reflecting on the fourth-quarter earnings season of 2024, RHB Research reported that the sector’s net profit fell by 3% quarter-on-quarter due to seasonal factors affecting NIM, non-interest income, and operating expenses. However, full-year sector earnings rose by 10%, supported by strong income growth, stable Jaws, and moderating credit costs, indicating an improvement in asset quality. Among the eight banks covered by the research firm, six posted results in line with expectations, while Affin Bank Bhd and Bank Islam Malaysia Bhd exceeded forecasts due to stronger-than-expected net loan impairment writebacks in the final quarter of 2024.

(Source: The Star)

• TAGS:
• Banking Resilience
• Banks
• Financial Markets
• Geopolitical Risks
• Investments
• Market Stability
• RHB Research