KUALA LUMPUR (March 3): The banking sector began 2026 on a steady note, with system loan growth holding at a little over 5% year-on-year (y-o-y) in January, supported by resilient household lending and asset quality, and a well-cushioned gross impaired loans (GIL) ratio, according to HLIB Research.
The research house noted that household loans grew by 4.7% year-on-year (y-o-y), driven by robust residential mortgages and hire purchase financing. In comparison, business loan growth moderated slightly close to 4% y-o-y due to softer capital expenditure and working capital demand.
“Leading indicators staged promising rebound, with a significant higher loan approval of 26.7% y-o-y, anchored by business credit demand of 42.3%, albeit total loan application softened to 6.3%.”
“That said, the loan pipeline remains robust and constructive, backed by strong pickup in loan disbursement of up 3.9% y-o-y (Dec-25: -3.4%) and repayment of +4.4% y-o-y(Dec-25: -3.0%), as reflective of accelerating business activities”, the house further said in a note on Tuesday.
On deposit growth, the house noted that it has eased to 2.8% y-o-y, weighed by weaker fixed deposits and foreign currency savings. However, current and savings account (Casa) growth rose to 8% y-o-y, as banks focused on cost-of-funds optimisation to defend yields.
In addition, asset quality remained resilient, with the GIL ratio at 1.40%, cushioned by substantial management overlays.
Interest spreads narrowed slightly, as lending yields fell four basis points (bps) month-over-month to close to 4.55%, outpacing a two bps decline in fixed deposit rates to 2.2%. The research house expects margins to stabilise over the medium term as asset-liability repricing effects subside.
Slowing loan momentum
Despite HLIB's positive stance, MBSB Research, however, flagged concerns over slowing loan momentum. It noted that although system loans grew but business loans weakened slightly, with small and medium-sized enterprises' (SMEs) loans slipping to 5.1% y-o-y compared to 6% previously. Working capital loans also posted their weakest performance in nearly two years, only 0.8% y-o-y, while unsecured retail loans declined too.
MBSB highlighted that asset quality deterioration was most visible in the SME segment, with the SME GIL ratio rising to 2.96%. Approval rates for the segment also moderated to 51%, down from 63% in December 2025, reflecting a lukewarm month for loan applications and approvals.
HLIB decided to maintain its “overweight” call on the sector, with Malayan Banking Bhd (KL:MAYBANK), CIMB Group Holdings Bhd (KL:CIMB), AMMB Holdings Bhd (KL:AMBANK) and Alliance Bank Malaysia Bhd (KL:ABMB) as their top picks, supported by capital optimisation plans, improved return on equity prospects, and dividend yield upside.
Meanwhile, MBSB Research named Hong Leong Bank Bhd (KL:HLBANK) and AMMB Holdings as their top picks, citing strong dividend prospects, improving liquidity from Casa inflows, and potential upside from capital releases.