Banks likely to be investors’ defensive play

PETALING JAYA: Larger-capitalised local banking stocks are likely to be the focus of investors amid the heightened risk and volatility affecting the markets, with defensive dividend stocks the main picks.

RHB Research said CIMB Group Holdings Bhd, which currently trades at financial year ending Dec 31, 2025 (FY25) price-to-book value (P/BV) of 0.96 times, “is the cheapest among the large banks, while its FY25 dividend yield is an attractive 6.5%”.

It believes Malayan Banking Bhd (Maybank) could also be a defensive option due to the bank’s focus on absolute dividend-per-share (DPS) rather than payouts, as this can help shield dividend yields against earnings uncertainties.

At the last traded price, Maybank offers an attractive 6.2% yield.

“Among the mid-small cap banks, we continue to favour Hong Leong Bank Bhd for its defensiveness. At one time FY25 P/BV versus return-on-earnings of 11.4%, valuation looks attractive, in our view.

“Finally, we think AMMB Holdings Bhd could garner investor interest thanks to its upcoming dividend announcement next month. We expect AMMB to declare a final DPS of 16.7 sen in its fourth quarter FY25 results, which offers investors a 3.1% yield,” it added.

RHB Research has a “neutral” call on Maybank with a target price of RM11.60 for the share, a “buy” call on AMMB with a target price of RM6.70, and a “buy” call on CIMB with a target price of RM9.25.

Overall, the KL Finance Index, down 8% year-to-date, has outperformed the FBM KLCI, which has declined 12% year-to-date and the FBM 100, which has contracted by 15%.

“In our view, the relative outperformance was driven by investors seeking refuge from market volatility and uncertainties stemming from trade and monetary policies, as well as geopolitics,” it said, pointing out that this was on the back of solid earnings that helped support attractive dividend yields.

The research house noted that the US tariff decision remains a dampener for banks, as they would be impacted by a slower macroeconomic environment.

“For instance, the slower gross domestic product (GDP) growth is expected to translate to a slowdown in non-household loan demand–investment as well as working capital loans.

“Banks may also curb growth due to a reduction in risk appetite. Loans to the household segment, though, is expected to be more resilient, backed by healthy mortgage loan pipelines,” it said.

It noted that RHB Economics has revised Malaysia’s GDP growth forecast to 4.5% from 5% for 2025, with the balance of risk leaning towards a 4% growth should tariff and trade tensions escalate further.

“For now, the 2025 overnight policy rate (OPR) expectation has been kept at 3%, but there is a possibility of a 25-basis-point cut in the second-half of 2025 should the GDP growth fall below the officially projected range of 4.5% to 5.5%,” it said.

“However, a moderation in loan growth may not be all that bad, as it will help ease pressure on deposit gathering, given the system loan-to-deposit ratio has been trending close to the upper end of its historical range.

“Furthermore, should expectations of an OPR cut build up, banks may pre-empt and cut deposit rates ahead of Bank Negara’s actual move,” it said.

It added that despite rate cuts being bad for banks in the first three to six months due to asset repricing, the impact may end up positive for net interest margins over nine to 12 months.

It said banks’ credit cost remains something to watch out for, as apart from net interest income, non-interest income such as loans and investment bank fee income may be negatively affected by slowing growth, although banks’ trading and investment income may benefit in an environment of falling bond yields.