KUALA LUMPUR (Dec 3): The Malaysian banking sector is poised for tightening liquidity and heightened deposit competition in 2026, after a strong finish this year.
MBSB Research maintained a positive outlook on the sector, citing strong fundamentals and attractive dividends as key drivers to a solid 4Q2025.
"Bolstered by multiple tailwinds, the banking sector is in a good place — so we expect share prices to continue their uptrend," MBSB said in a note on Wednesday.
According to the firm’s note, elevated dividend yields, improving loan growth, stable net interest margins (NIMs), stronger fee income, and further recoveries in gross impaired loans (GIL) are expected to support continued share price growth.
Although potential headwinds like asset quality and liquidity pressures persist, they are currently seen as secondary concerns.
Citing takeaways from "multiple banks" on the tightening liquidity situation, MBSB expects weaker liquidity indicators in the coming quarters.
"We are wary that brighter loan growth prospects in CY2026 could dry out liquidity a lot faster than expected, leading to intense deposit competition returning," said MBSB.
"...Tariff impact may have a discernible impact on borrowers’ financials by 2HCY2026 (as inventory stockpiles need time to deplete). But for now, asset quality issues are largely idiosyncratic and don’t hint towards more insidious trends," said the house.
MBSB’s top picks in the sector are RHB Bank Bhd (KL:RHBBANK)('buy'; target price/TP: RM7.95) and Public Bank Bhd (KL:PBBANK) ('buy'; TP: RM5.05).
Separately, Kenanga, which kept its 'overweight' call on the sector, said that in a climate where growth prospects may be tested, greater credit should be given to banks that continue deploying capital efficiently.
Accordingly, its top picks are AMMB Holdings Bhd (KL:AMBANK) ('outperform'; TP: RM6.90) for its rising earnings growth and return-on-equity (ROE) potential, with a growing trajectory to its dividend payout which distinguishes it from other high yielders.
Meanwhile, Malayan Banking Bhd (KL:MAYBANK) ('outperform'; TP: RM11.30) serves as Kenanga’s large-cap top pick, supported by its leading market share which allows better scale and product manoeuvrability, as well as better-than-industry GIL and presently stable dividend yield (circa 6%).
Within the non-bank financial institution (NBFI) space, Kenanga highlighted Syarikat Takaful Malaysia Keluarga Bhd (KL:TAKAFUL) ('outperform'; TP: RM4.40) for its continued growth in its key credit-related products, backed by its renewed bancatakaful partnership with RHB Bank. Its increased payout expectations (6% yield) could also attract yield-seeking shariah investors.
"Notably, during the reporting season, we had downgraded CIMB Group Holdings Bhd (KL:CIMB) to 'market perform'.
"While its capital return plan was viewed favourably with special dividends raising yield prospects, we opine it could be a signal of more conservative capital deployment to meet its longer-term Forward30 growth targets," it added.