Positive Outlook on Malaysian Banking Sector Despite Liquidity Concerns

MIDF Research reaffirms its POSITIVE rating on Malaysia’s banking sector, highlighting plentiful tailwinds such as strong dividend yields and improving loan growth.

The latest monthly sector report notes persistent moderate loan growth at +5.2% yoy in November 2025, driven by non-household segments, while household loans continue to soften. Deposits recorded negative sequential growth, pushing the loan-to-deposit ratio to 93.2%—its highest in recent periods—and liquidity coverage near lows.

Key positives on Banking Sector include:

Strong forward indicators
Approval rates
Expected fee income growth from wealth management and bancassurance
Bright dividend prospects following capital framework clarity

Analysts remain wary of liquidity tightening accelerating in 2026 amid robust loan demand, potentially intensifying deposit competition and pressuring cost of funds (COF). However, stable net interest margins (NIMs), flat gross impaired loan (GIL) ratios at 1.40%, and further recoveries outweigh headwinds for now.

Top picks are Hong Leong Bank (BUY, TP RM23.94) and Public Bank (BUY, TP RM5.05), underscoring confidence in defensive plays with strong fundamentals.

For MBSB, the sector’s attractive valuations and regional inflows position it well as a beneficiary, provided asset quality remains contained and liquidity risks do not escalate prematurely.

Business News