Upbeat outlook for banks

PETALING JAYA: The banking sector is poised for a steady but moderating growth trajectory heading into the final quarter of 2025 (4Q25). This optimism is underpinned by resilient asset quality, healthy disbursement trends and potential re-rating catalysts, according to analysts.

While earnings momentum is expected to remain intact, the pace of loan expansion may ease slightly, as the industry normalises from the robust lending seen earlier in the year.

CGSI Research projects that the sector’s loan growth could soften modestly for October 2025, after accelerating to a growth of 5.5% year-on-year (y-o-y) in September from 5.4% y-o-y in the preceding month.

“Assuming that banks sustained their momentum for month-on-month (m-o-m) loan growth of 0.5% in October (on par with the level in September), the banking industry’s loan growth would ease to 5.3% y-o-y at end-October,” it said.

“Should growth slip further to between 0.3% and 0.4% m-o-m, the October loan growth could moderate to between 5.1% and 5.2% y-o-y.”

Nonetheless, CGSI Research remains constructive, maintaining its “overweight” call on the sector.

This is “premised on potential re-rating catalysts of ongoing write-backs in management overlay and our expectations of increases in the dividend payout ratios for most banks,” it explained. Its top picks are Hong Leong Bank Bhd (HLB), RHB Bank Bhd and CIMB Group Holdings Bhd.

CGSI Research also highlighted the improving credit quality, noting a positive view on the 1.1% m-o-m decline in banks’ gross impaired loan (GIL) in September, which led to a drop in the GIL ratio from 1.43% at end-August to 1.41%.

It added that total provisions fell by RM444.8mil quarter-on-quarter (q-o-q) in 3Q25, implying potential write-backs in loan loss provisioning.

Hong Leong Investment Bank (HLIB) Research echoed the upbeat tone, citing solid fundamentals and manageable risks.

“We anticipate the continued asset quality stability will be underpinned by the resilient local economy,” it said.

The research house noted that provisioning buffers remain ample and that a stabilising net interest margin (NIM) could be on the cards in 4Q25, backed by easing fixed deposit rate rivalry coupled with banks’ repricing strategy.

HLIB Research expects overall loan growth to stay comfortably within its full-year forecast range of 5% to 5.5%.

Valuations too appear attractive, with HLIB Research highlighting the sector’s appeal to investors.

“We continue to favour the banking sector, underpinned by attractive valuations, and a compelling dividend yield of more than 5%,” it explained.

The research firm maintains “buy” calls on Affin Bank Bhd, AMMB Holdings Bhd, CIMB, Malayan Banking Bhd, Public Bank Bhd and RHB Bank Bhd.

Maybank Investment Bank Research (Maybank IB) shared similar optimism, citing dividend growth and sound balance sheets as key positives.

It said, “Our top three picks in the sector continue to be HLB, AMMB and Public Bank.”

It noted that HLB offers strong asset quality, high loan loss coverage and a very liquid balance sheet.

RHB Research also maintained an “overweight” stance, noting that Malaysia’s banking system data for September showcased strong loan growth, supported by accelerating loan disbursements.

It expects stronger lending in the final quarter, supported by “the healthy build-up of approved loans and accelerating trend in loan disbursements in 3Q25”.

Industry data showed loan growth improving to 5.5% y-o-y in September 2025 from 5.4% y-o-y in August 2025, with moderating household lending offset by faster business loans. Year-to-date, annualised loan growth currently stands at 4.5%.

Encouragingly, loan applications continue to rise, while current account savings account deposits grew 8.1% y-o-y in September – underscoring that Malaysia’s banks remain well-anchored for a stable finish to the year.