KUALA LUMPUR (Oct 27): Affin Bank Bhd (KL:AFFIN) may be under pressure from tighter margins from competition and higher provisions on retail borrowers in the near term, an analyst said.

Net interest margin, the difference between interests charged on loans and returns paid on deposit, may see “some” quarter-on-quarter compression in the third quarter amid an industry-wide price war, TA Securities flagged in a note following a meeting with Affin’s management.

“We believe this is likely to remain a key near-term earnings headwind, particularly as competition for deposits typically intensifies towards year-end,” the house said.

Malaysian banks, like global peers, are under pressure as surging sovereign bond yields drive customers to shift their cash from traditional savings accounts into higher-yielding money markets and other short-term funds.

As low-cost current accounts and savings accounts drain, banks must step up interest rates to attract depositors, which raises their cost of funding.

Asset quality will be another key area of focus in the upcoming results, TA Securities said amid increasing repayment stress within the retail portfolio, particularly among lower-income borrowers exposed to higher living costs and energy prices.

Further, the original guidance for credit cost — provision for expected loan losses as a percentage of total gross loans — “may be understated” for 2026 at 13 basis points and may come in around 30 basis points, the house said.

Sustained foreign selling pressure and weaker investor sentiment will continue to weigh on the sector’s valuations, even when underlying fundamentals remain sound, TA Securities said and cut its target price by 24 sen to RM2.19.

Beyond the short-term pain, Affin remains a 'buy' for TA Securities, given its attractive risk-reward profile with potential upside exceeding 12% from the last price of RM1.94.

Affin will report a net profit of RM540 million for 2026, unchanged from the previous year, before growing to RM591 million, according to the house’s forecasts. It didn’t provide a quarterly estimate.

“We remain optimistic on the bank's longer-term transformation strategy, improving customer franchise and balance-sheet expansion,” the house added.