Banking sector’s dividend outlook remains bright

PETALING JAYA: The banking sector, despite the presence of some headwinds, remains resilient with extremely attractive dividend yields.

MBSB Research said this, adding that it believed the sector’s fundamental outlook remains sound, with robust earnings, manageable asset quality, large-scale recoveries and better loan growth expected in the months ahead.

In a report to clients, it noted that Vantris Energy Bhd has completed its restructuring scheme and creditors have emerged as shareholders.

It said so far, Malayan Banking Bhd, CIMB Group Holdings Bhd and RHB Bank Bhd have emerged as major shareholders.

“Other listed creditors (particularly AMMB Holdings Bhd) did not issue announcements, likely being short of the 5% shareholding disclosure threshold. We can speculate on their current stake based on the circular issued by Vantris Energy a couple of months back,” MBSB told clients.

It said assuming the need to mark-to-market the settlement shares, Vantris Energy’s current market price of 53 sen will make up roughly 1.5% to 2.3% of current financial year earnings for the creditors.

“Most banks were already guiding for stronger recoveries in the second half of 2025 – hence these proceeds are likely embedded in most banks’ guidance.

“Regardless, this is a step in a positive direction,” it added.

MBSB said the sector’s dividend outlook is bright with lower loan growth expectations and less skittishness over Basel III implementation, which lessens worries about capital.

It also said the liquidity outlook is bright.

The research house said loan growth outlook is “not amazing” with most banks expecting mediocre to weak figures.

Expanding on that, the primary market residential mortgages environment is even more competitive while small and medium enterprise yields are narrowing, it said, adding that problematic portfolios in several banks may dissuade strong growth in this segment.

MBSB said net interest margin or compression will occur, a consequence of the recent overnight policy rate cut.

“Be wary that a possible further rate cut in the second half is possible,” it said.

When it comes to asset quality, it’s a mixed bag, it added.

“Some banks saw a spike this quarter, spooking investors – others managed this very well. Regardless, the consensus is that there will be some normalisation in the second half of 2025 and large recoveries are expected in select banks.”

Provisions-wise, it’s also mixed, though upside risk is greater. MBSB said most banks have already issued large overlays.

“Hence, we are not expecting too many further incidents of higher provisioning. Concurrently, multiple banks are gearing up for large-scale writebacks, implying a lighter second half of 2025.”

MBSB said it is maintaining its “positive” call on the sector and that its top downside risks include a weak economic situation which will drag growth, asset quality deterioration and further rate cuts.