MBSB Investment Bank Bhd (MBSB Research) maintained its POSITIVE call on the banking sector, saying possible US interest rate hikes could pressure non-fee income but a similar move in the Overnight Policy Rate (OPR) and regional rates could provide support through improved net interest margins (NIM).
The research house also named Hong Leong Bank Bhd (HLB) and Alliance Bank Malaysia Bhd (ABMB) as its top picks with BUY ratings and target prices of RM30.50 and RM5.92 respectively.
MBSB Research expects the banking sector to face a challenging 2QCY26 earnings season, with several banks likely to revise guidance due to rising deposit competition, heavier provisioning linked to geopolitical uncertainties and limited room for dividend upside. However, it believes these pressures should ease as the year progresses, supported by resilient domestic loan growth and a strong local economy.
The research house said a potential US Federal Reserve rate hike could weigh on investment income as higher yields hurt bond prices, although banks may benefit from foreign exchange gains. It added that if Bank Negara Malaysia follows regional peers in adjusting rates, banks could see some improvement in NIM, although MBSB Research does not expect an OPR hike in 2026.
MBSB Research noted that business loan growth has remained stronger than expected, although it has intensified competition for deposits as banks seek additional liquidity. While asset quality concerns have reduced after easing oil prices, the prolonged Middle East conflict could continue prompting banks to maintain higher provisions.
Despite near term challenges, MBSB Research said Malaysia’s banks remain attractive due to strong capital positions, healthy dividend yields and improving loan growth prospects.
