External risks weigh on banks’ growth outlook

PETALING JAYA: Geopolitical uncertainty may impact investor sentiment for the growth prospects of selected domestic bank stocks amid foreign-exchange translation risks to consolidated earnings, analysts say.

Concerns were raised following the recently concluded earnings reporting season, in which the financial performance of all 10 domestic banks came in within expectations.

Kenanga Research said against the current backdrop, it has reshuffled its preferences for bank stocks by introducing Hong Leong Bank Bhd (HLB) as its new pick, with the bank’s recently increased payout ratio of 45% improving the stock’s dividend yield outlook to around 5%.

The research house has maintained an “overweight” call on bank stocks.

HLB’s strong fundamentals supported by stellar asset quality for its financial year ended June 30, 2025 (FY25), with gross impaired loans (GIL) of 0.54% and credit cost of below 10 basis points, make the lender an attractive longer-term holding with target price of RM24.50, the research house said.

While still liking Malayan Banking Bhd (Maybank), Kenanga Research has lowered the bank’s target price by 6% after its results release to RM11.30 following a more conservative loans outlook due to poorer performing regional operations.

“Still, Maybank maintained its solid footing in the domestic market, which was reflected in its above industry average loans growth, overall better than industry average GIL of 1.30% as of June, and dividend yields of about 6%,” the research house added.

Kenanga Research’s top bank pick remains AMMB Holdings Bhd with target priceof RM6.90 on the back of a more solid return-on-equity base as the bank focuses on stronger earnings drivers opposed to gaining market share in less profitable segments.

The research house pointed out that following AMMB’s recent transition into the Foundation Internal Rating-based regulatory capital regime, the bank’s newly acquired Common Equity Tier 1 levels of around 15% have led to more generous dividend payouts, making it one of the leaders in yield at around 7% to 8% over a three-year horizon.

“Except for CIMB Group Holdings Bhd, MBSB Bhd and RHB Bank Bhd, banks reported growth on a year-to-date basis in their respective pre-provision operating profit as net interest income was held up by relatively stable net interest margins (NIMs) while their non-interest income benefitted from volatility in the investment markets during the first half of this year (1H25),” the research house said.

Amid the potential softening of the domestic economy, banks such as Maybank and RHB have toned down their loan-growth guidance in anticipation of a softer 2H25, the research house said.

“Additionally, following the July overnight policy rate cut of 25 basis points, ABMB, Maybank, Public Bank Bhd, RHB had lowered their NIM targets by two to three basis points, accounting for competition in lending yield rates,” Kenanga Research said.