KUALA LUMPUR (Jan 9): The worst is over for Malaysian banks’ asset quality, and investors should take the opportunity to buy during near-term profit-taking for their solid loan growth and dividend yields, said MIDF Amanah Investment Bank.

The percentage of bad debts in the system could see some further “gradual” improvements after falling steadily to its lowest in 15 months, the research house said in a note. Provision charges may then fall as most banks have already boosted their loan loss coverage to “comfortable” levels, it said.

“Looking into 2025, we remain positive on the banking sector, as we expect earnings will continue to be robust [supported] by solid gross loan growth and stable asset quality,” MIDF said.

Banks, seen as a proxy to the economy, largely gained in 2024, thanks to stronger-than-expected expansion of gross domestic product. A string of market upgrades, including by JPMorgan and Goldman Sachs, also boosted the buying into banks due to their massive weightage.

Shares of Malayan Banking Bhd (KL:MAYBANK), the country’s biggest in terms of assets, gained 22% last year, while closest competitor CIMB Group Holdings Bhd (KL:CIMB) surged 46%. Public Bank Bhd (KL:PBBANK), the country’s third largest, was up 11% in 2024.

MIDF said the market is expected to be volatile this year, raising the appeal of the banking sector’s defensive qualities.

The outlook for dividends remains promising, with several banks reaffirming their commitment to increasing payouts and some offering full cash dividends — an indication that banks are happy with their capital build-ups, the research house said.

Demand for loans is anticipated to remain robust heading into 2025, supported by the launch of major infrastructure projects and sustained construction activity, even as retail loans have already shown signs of tapering by November 2024, MIDF added.

For strategy, the house’s top picks are Maybank for its “excellent” dividend yield, as well as Public Bank and Hong Leong Bank Bhd (KL:HLBANK) for their solid asset quality and domestic focus.