MBSB Investment Bank Bhd (MBSB Research) has upgraded its call on the banking sector to POSITIVE while maintaining BUY ratings on RHB Bank and Hong Leong Bank, citing resilient earnings prospects, strong dividend yields, and improved clarity on sector headwinds.
For RHB Bank, the research house reiterated a Buy with a target price of RM7.21, compared with RM6.58 at the close on 8 September 2025. It highlighted high dividend yields, with the potential for above-average payout in FY25, supported by loan recoveries in small and medium enterprise (SME) and foreign segments, alongside solid non-interest income (NOII) to drive topline growth in the second half of the year.
Hong Leong Bank also retained a Buy call with a target price of RM21.71 against RM20.08, with MBSB Research describing it as a defensive pick given its strong asset quality and low provisioning levels. The bank is expected to see improved dividend payouts and sharp NOII growth, especially from its regional businesses.
On the broader sector, MBSB Research noted that despite net interest margin (NIM) compression and higher operating expenses, banks have demonstrated clarity on managing headwinds. NOII growth, robust liquidity and loan recoveries are expected to offset topline pressure, while higher-than-normal dividend yields add further appeal.
The research house said deposit growth continues to outpace loan growth, leaving the industry flushed with liquidity. Most banks are anticipating stronger lending momentum in the second half of 2025, though loan growth is expected to remain moderate.
It added that banks stand as prime beneficiaries of emerging market inflows, supported by robust earnings, high dividend yields and stable asset quality. Dividend outlook is bright, with hints of higher payouts at year-end, while wealth management, bancassurance and debt capital markets are expected to be key topline drivers.
MBSB Research cautioned, however, that NIM compression will persist following the recent Overnight Policy Rate (OPR) cut, with the risk of another cut in the second half of 2025. Loan growth remains underwhelming in the primary mortgage and SME segments, while asset quality showed mixed trends across banks.
Still, larger recoveries and potential provisioning writebacks are expected to ease earnings concerns in the coming quarters.
