RHB Research has maintained its “Overweight” rating on Malaysia’s banking sector, citing resilient loan growth, healthy capital buffers and sustained dividend prospects despite a gradual rise in impaired loans.
The research house continues to favour Public Bank, Malayan Banking (Maybank), AMMB Holdings and Hong Leong Bank as its top sector picks, noting that the industry’s fundamentals remain intact ahead of the upcoming second-quarter earnings season.
According to Bank Negara Malaysia’s (BNM) June 2026 banking statistics, system loan growth remained stable at 5.5% year-on-year, keeping the sector on track to meet RHB’s full-year forecast of between 5.0% and 5.5%.
Business lending continues to drive growth
RHB Research said the banking sector continues to benefit from stronger demand for business financing, with non-household loans expanding 6.1% year-on-year, outperforming household loan growth of 5.0%.
Among business segments, the strongest expansion came from the transport and communications sector, where loans grew 18.0%, followed by the education and healthcare sector, which recorded 16.0% growth.
The primary agriculture sector remained the weakest performer, with outstanding loans declining 8.9% from a year earlier.
Within the household segment, loan growth was mainly supported by financing for securities purchases, which increased 7.0%, hire purchase loans at 5.5%, and residential mortgages, which expanded 5.4%.
However, RHB noted that overall household loan growth has slowed to its weakest pace since April 2022, reflecting more measured consumer borrowing activity.
Loan demand remains healthy
The research house said lending indicators continue to point towards healthy credit demand.
During the first half of 2026, system-wide loan applications increased 8.6% year-on-year, while loan approvals rose a stronger 12.6%, supported primarily by business financing.
Applications for non-household loans climbed 14.7%, while approvals surged 21.5%, indicating continued investment activity across the corporate sector.
In comparison, household loan applications and approvals rose by a more modest 3.6% and 2.9%, respectively.
Loan disbursements also remained positive, increasing 4.7% year-on-year, led by the non-household segment, suggesting the banking sector’s loan pipeline remains supportive for the remainder of the year.
Deposits strengthen as liquidity improves
RHB highlighted that system deposit growth accelerated to 6.0% year-on-year in June, marking the fastest expansion since May 2023.
The improvement was driven mainly by deposits from businesses and financial institutions, partly reflecting stronger corporate lending activity.
Current account and savings account (CASA) deposits continued to perform well, with CASA balances growing 7.7%, lifting the industry’s CASA ratio to 32.3%, compared with 31.6% a year earlier.
The stronger deposit growth also resulted in an improvement in liquidity, with the industry loan-to-deposit ratio easing to 88.3%, while the liquidity coverage ratio remained robust at 149.7%, comfortably above the regulatory minimum of 100%.
Asset quality shows mild deterioration
Despite the positive lending environment, RHB noted that asset quality weakened marginally during the month.
Gross impaired loans (GIL) increased 6.2% year-on-year and 3.8% quarter-on-quarter, with household impaired loans rising 7.8% amid broad-based weakness.
Non-household impaired loans increased 4.8%, driven largely by higher delinquencies in the transport and communications, wholesale and retail trade, and construction sectors.
As a result, the industry’s gross impaired loan ratio edged up to 1.43% from 1.40% recorded at the end of March.
Loan loss coverage also moderated slightly to 81.3%, down from 83.0% previously.
Nevertheless, RHB believes Malaysian banks remain well-positioned to absorb any increase in credit costs given their sizeable provision buffers and prudent risk management practices.
Dividend outlook remains attractive
Capitalisation across the banking sector also remained healthy, with the common equity tier-1 (CET-1) ratio standing at 13.9%, while the total capital ratio held steady at 17.5%.
Given the industry’s solid capital position, resilient earnings outlook and manageable asset quality trends, RHB expects banks to continue delivering attractive dividend payouts despite a modest uptick in impaired loans.
The research house said investors will be closely watching banks’ upcoming quarterly earnings announcements for further updates on asset quality trends and management guidance, but maintained confidence that the sector remains fundamentally strong and capable of sustaining shareholder returns.
