This article first appeared in The Edge Malaysia Weekly on November 17, 2025 - November 23, 2025

SOME analysts are optimistic that MBSB Bhd (KL:MBSB) may finally be turning a corner after struggling to gain traction in the financial services industry since becoming a full-fledged bank in 2018.

The country’s second-largest standalone Islamic banking group is expected to see an earnings acceleration in the second half of this year, following a subdued first half, on growing momentum from the execution of its three-year strategic plan — Flight26 — that it embarked on last year. The plan is spearheaded by the bank’s new management, led by group CEO Rafe Haneef who took the helm in July 2023.

“We’re expecting much stronger financing growth in the second half and this should help cushion some of the damage that the overnight policy rate cut [of 25 basis points by Bank Negara Malaysia in July] would have on asset yields,” Nabil Thoo, a banking analyst from RHB Research, tells The Edge.

In the first half of the financial year ending Dec 31, 2025 (1HFY2025), MBSB — a former non-bank lender — chalked up a 35% year-on-year (y-o-y) rise in net profit to RM180.24 million, amid significant improvement to credit cost.

However, this accounted for only 34% of analysts’ full-year consensus estimates and financing fell 1.7% y-o-y.

The underperformance did not come as a surprise, however, as the bank’s management had guided for a slow 1HFY2025 due to a recalibration of its internal credit underwriting processes.

“Now that that’s done, the group is comfortable about ramping up its financing growth engine and recent news flow has been supportive. On top of that, we are seeing quite strong non-financing income trajectory, partly from the MIDF integration and greater synergies emerging, while treasury and investment income is also expected to be good, as [too] with peers,” says Thoo, referring to MBSB’s acquisition of Malaysian Industrial Development Finance Bhd in late 2023.

“If MBSB’s operating and credit costs can hold as they have, then we think earnings are set to accelerate from 2HFY2025 onwards.” 

MBSB recently secured some high-profile Islamic financing deals, including RM1.3 billion for Cypark Resources Bhd (KL:CYPARK), RM1.2 billion for Singapore-headquartered DayOne Data Center and RM180 million for MAG Holdings Bhd (KL:MAG).

Last month, it committed RM1.3 billion to support Weststar Aviation Services Sdn Bhd’s expansion. Its investment banking unit, MBSB Investment Bank Bhd, is the joint lead arranger for this syndicated Islamic financing facility.

The RM1.2 billion financing for DayOne — of which it is the mandated lead arranger — is part of a total syndication valued at RM15 billion.

“MBSB is quietly muscling in on mega projects via syndicated lending,” BIMB Securities Research observes. “Its current corporate loan book is RM6 billion and management is currently working on RM2 billion to RM3 billion [that] it hopes to close by end-2025 — potentially a meaningful step towards the RM50 billion loan book target [this year].”

While syndicated deals typically have thin yields, Thoo points out that corporate financing deals often “come with good cross-sell opportunities, which will also help push Casa (current account and savings account) deposits and non-financing income growth as well”.

MBSB’s Casa ratio is currently at 10%, versus the industry’s average of about 30%.

MBSB’s proportion of corporate financing has been increasing but the bulk of its financing is in the consumer segment, in particular personal financing (PF) and home financing.

Its financing book stood at RM42.92 billion as at end-June, with 42% in PF — a far cry from 15 years ago, when it accounted for almost 70% of the bank’s book — and 25% in home financing.

“MBSB’s growth focus is broad-based across all customer segments. Within retail, the group will be targeting mortgages (instead of PF) to provide that solid foundation for its balance sheet. It is also ramping up its SME and corporate financing propositions — areas in which it had previously lagged,” Thoo says.

MBSB is targeting financing growth of 5% to 6% this year and 7% to 8% next year.

A non-bank lender, MBSB transformed into a full-fledged bank after acquiring Asian Finance Bank Bhd in February 2018. This enabled it to collect retail deposits, helping it strengthen its funding base and lower its cost of capital.

In October 2023, it acquired MIDF, which gave it new businesses such as investment banking and asset management, and a larger small and medium enterprise (SME) portfolio. It brought in new and experienced people to lead the group, resulting in the formation of the Flight26 strategy, which aims for a sustainable return on equity (ROE) of 7% to 8% by FY2026. As at 1HFY2025, ROE was at just 3.7%.

Flight26 focuses on driving operational efficiency through optimised cost of funds while expanding financing growth and non-funded income via digital platforms and SME solutions.

MBSB’s efforts to expand Casa are key to ensuring its margins remain supportive to earnings.

In mid-September, RHB Research upgraded the stock to “buy” and raised its target price to 79 sen from 67 sen. “We think the stock is worth a closer look,” it said, adding that MBSB is its preferred domestic-only bank.

Later that month, BIMB Securities initiated coverage on the stock with a “buy” and target price of 81 sen. The move was telling as MBSB has rarely had more than one “buy” call from the investment community in recent years.

As at Nov 13, the stock had gained 4.14% year to date to close at 73 sen, giving MBSB a market value of RM6 billion. The Employees Provident Fund is its biggest shareholder with a 56.48% stake, followed by Yayasan Pelaburan Bumiputra with 12.78%.

BIMB Securities sees MBSB as “a turnaround and value-unlock story”, forecasting a compound annual growth rate (CAGR) of 12.4% for FY2025-2027 earnings and ROE rising to 5.8% by FY2026, driven by an improving funding mix, synergies from MIDF and accelerating loan growth.

“Our FY2025-FY2027 forecasts are above consensus, reflecting our greater confidence in management’s execution,” BIMB Securities said in its Sept 24 report.

Two other analysts that track MBSB — Kenanga Research and AmInvestment Bank Research — have MBSB on “market perform” and “hold” respectively, Bloomberg data shows. In a Sept 11 report, Kenanga Research cited the need for a longer track record, given previously volatile earnings. “Still, we believe investors are willing to support a recovery and high growth angle, even if its ROE largely underperforms its peers’ [ROE of] about 10%,” it added.

RHB Research likes MBSB for the dividend angle. It expects MBSB’s net profit to increase to RM481 million in FY2025 from RM407 million last year and then to RM559 million in FY2026, with dividend per share anticipated at five sen this year — the same as last year — and six sen next year.

“Given MBSB’s overcapitalised nature (its Common Equity Tier-1 ratio is at 19% versus an industry aggregate of 14%), management intends to pay out about 90% of its earnings as dividends. On our earnings forecasts, this generates 7% to 9% dividend yields, quite significantly higher than the rest of its peers (5% to 6% on aggregate),” Thoo says.

“Execution risk is likely [our] biggest concern at this moment for MBSB. We have a +16% earnings CAGR forecast over the next three years (2024-2027), with a +18% y-o-y projection for FY2025, which looks considerably high in a low OPR [overnight policy rate] environment. [But] OPR-cut mitigating factors include financing growth and non-financing income — as mentioned earlier — alongside continued asset-liability mix optimisation and a low Casa ratio.”

MBSB’s high gross impaired financing ratio — at 5.6% as at end-June versus the banking system’s 1.4%, mainly because of legacy loans — is not a huge concern for Thoo, who is confident in management’s ability to obtain better-quality customers.

“While headline asset quality indicators may not compare favourably with the industry, we think these should improve with time,” he says. 

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