Banks still top dividend play

INVESTORS seeking exposure to Malaysia’s banking sector may still find compelling opportunities, despite growing uncertainty over the global economic outlook.

The sector continues to offer attractive dividend yields, strong capital positions, healthy liquidity and resilient loan growth – factors that have prompted several research houses to maintain positive recommendations on Malaysian banks.

While risks from geopolitical tensions, rising fuel prices and cost pressures remain on the radar, the sector is still supported by strong capital buffers, healthy liquidity, resilient asset quality and attractive dividend yields, according to several research houses polled by StarBiz 7, namely Kenanga Research, RHB Research, MBSB Research, CIMB Research and BIMB Research.

They rate the sector as “overweight” or “positive”. The common thread across the research houses is that Malaysian banks are entering this period of uncertainty from a position of strength.

BIMB Research, for one, says the sector remains “well-capitalised with robust provisioning, while liquidity and funding continue to demonstrate resilience”. CIMB Research similarly describes the sector as “highly defensive, anchored on firm dividend visibility”.

MBSB Research highlights that Malaysia’s robust economic outlook, excellent dividend yields, solid asset quality, and high capitalisation levels make the banks look “particularly attractive”, while noting that lower valuations following recent share price weakness have created opportunities for investors.

Against this backdrop, the research houses have identified several preferred banking stocks.

Sector picks

Kenanga Research’s top pick is Public Bank Bhd, citing its compelling combination of attractive dividend yields of more than 6% and lowest gross impaired loan ratio among peers, making it particularly defensive amid the current uncertainty.

Kenanga Research also favours CIMB Group Holdings Bhd because of its sector-leading dividend yield potential of around 7%, as well as AMMB Holdings Bhd (AmBank) for its earnings resilience.

RHB Research’s preferred stocks are Public Bank, Malayan Banking Bhd (Maybank) and AmBank.

It likes “a mix of defensive banks” such as Public Bank, Maybank and Hong Leong Bank Bhd (HLB) to weather uncertainties, while also favouring laggards like AmBank as concerns over rising costs begin to ease.

MBSB Research names HLB and Alliance Bank Malaysia Bhd as its top picks. The research house argues that the recent share price correction in the sector is overly severe and continues to favour banks offering strong dividends and solid balance sheets.

CIMB Research’s preferred names are RHB Bank Bhd, Public Bank and HLB.

According to the research house, these banks stand out due to “firm dividend visibility, defensive earnings, and stronger asset quality buffers”.

Meanwhile, BIMB Research’s sole buy recommendation is MBSB Bhd. It also highlights the attractiveness of large-cap banking stocks, noting dividend yields of 6% to 7% among Maybank, CIMB, Public Bank, RHB Bank and MBSB.

Positive outlook

Looking ahead, the research houses remain constructive on sector prospects, although they acknowledge several risks that warrant monitoring.

“Most banks struck a cautious tone, citing the difficulty in assessing the full impact of ongoing geopolitical tensions and elevated fuel prices on borrower health,” Kenanga Research.

“Any meaningful signs of repayment stress may likely only emerge in the second quarter of 2026 or later,” it cautions.

The research house also expects potential earnings pressure from continued net interest margin compression and weaker foreign exchange-related income, particularly as a stronger ringgit affects treasury and trading performance.

Meanwhile, RHB Research points to strengthening loan growth as a positive sign.

It notes that system loan growth accelerated further to 5.6% year-on-year in April 2026, driven mainly by business lending. The research house also highlights robust lending indicators, with year-to-date loan applications and approvals rising 7.5% and 13.4%, respectively.

While acknowledging that the Middle East conflict has clouded near-term visibility, RHB Research believes the impact should remain manageable due to provision buffers already built into the system.

It maintains its forecast for system loan growth of between 5% and 5.5% this year.

MBSB Research remains optimistic about income growth and shareholder returns.

“Dividend outlook remains extremely bright. Capital remains elevated, and Basel transition is capital accretive in most cases,” it points out.

The research house also expects wealth management, bancassurance and debt capital markets activities to support fee income growth.

It adds that the liquidity situation is still great, with ample low-cost deposits available across the banking system.

However, it cautions that rising cost pressures may pressure operating expenditure, and sees possible asset quality issues ahead.

CIMB Research believes downside risks from supply chain disruptions and external uncertainties remain “manageable and well cushioned by the sector’s robust balance sheet strength and system-wide buffers”.

The research house stresses that Malaysian banks have limited direct exposure to Middle East markets and retain sufficient flexibility to adjust portfolios if conditions deteriorate.

“Loan demand remains healthy, asset quality risks are largely contained, and sector buffers remain robust,” it says.

As CIMB Research sees it, the sector is transitioning into a more capital-efficient phase, supported by Basel 3.1 optimisation, disciplined repricing, cost controls and sustainable dividend payouts.

BIMB Research shares a similarly positive outlook. It says sector valuations remain attractive at around one time financial year 2027 price-to-book value, and highlights ongoing capital return initiatives by CIMB and Public Bank through special dividends.

It also points to support measures introduced by Bank Negara Malaysia, including the RM5bil Small and Medium Enterprise Stabilisation Relief Facility and restructuring assistance programmes, which should help businesses cope with higher costs linked to the Middle East conflict.

Taken together, the five research houses believe Malaysia’s banking sector remains an attractive investment proposition.

Strong capitalisation, resilient liquidity, healthy loan growth and generous dividends should continue to underpin confidence in the sector’s outlook, despite geopolitical risks, cost pressures and asset quality concerns.