Analysts See Value in Banks Again, Maintains Overweight Call

KUALA LUMPUR, Nov 5 — AmBank Research has maintained its “Overweight” call on Malaysia’s banking sector, arguing that recent share price weakness has created an attractive buying opportunity despite lingering concerns over rising bond yields and pressure on profit margins.

According to the research house, investors have become cautious over the impact of elevated US Treasury yields, which could attract capital back to the United States and push Malaysian Government Securities (MGS) yields higher. There are also concerns that intense competition for fixed deposits (FDs) is squeezing banks’ net interest margins (NIMs).

However, AmBank believes much of the negativity is already reflected in current valuations. The sector is trading at around 0.86 times price-to-book value while offering dividend yields of about 6%, which remain attractive relative to MGS yields.

Value in Banks

The research house also highlighted strong domestic liquidity as a key support for the bond market. Institutions such as the Employees Provident Fund (EPF) and local banks continue to provide substantial demand for government bonds, helping to absorb periods of foreign selling and reducing the risk of a prolonged rise in MGS yields.

Historically, spikes in MGS yields have also proven temporary. AmBank noted that previous increases eventually moderated, reinforcing its view that fears of sustained upward pressure on yields may be overstated.

Another factor underpinning its positive stance is the possibility of Overnight Policy Rate (OPR) normalisation in 2027. If interest rates rise, banks could benefit as loan yields typically adjust faster than deposit costs, supporting margin expansion and earnings growth.

AmBank estimates that every 25-basis-point increase in interest rates could lift sector NIMs by five to six basis points and increase annual earnings by 3% to 4%.

With local fund exposure to banks having declined significantly and foreign investors remaining underweight, the research house sees room for fresh buying interest, making the sector an attractive re-entry point for investors seeking income and potential upside.

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