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MBSB Research has grown a lot more positive on the banking sector’s outlook, as Malaysia’s growth prospects are buoyed by an improved economic outlook and geopolitical stability.
Solid fundamentals and high dividend yields make us one of the core recipients of emerging market flows.
Weaknesses and uncertainties in core aspects such as net interest margin (NIM), loan growth, capital, asset quality, and provisioning have diminished greatly over the last several months.
Better clarity on Basel IV implementation and Bank Negara Malaysia (BNM)’s new capital framework on credit risk should lead to more banks unlocking excess capital.
“There are hints of higher dividend payouts at 2025’s end,” said MBSB.
Non-interest income is also to remain as the core topline driver in the near term. Wealth management, bancassurance, and debt capital markets are common drivers of the fee side. Forex volatility and lowering bond yields bolster these returns, though whether or not investment-related windfall may persist in 2026 remains to be seen.
Liquidity outlook is bright for now. Currently, most banks boast elevated liquidity ratios, with space for pricier fixed deposit (FD) release or loan/deposit optimisation.
This can offset NIM compression in subsequent quarters. However, MBSB is wary that 2026 may see stronger loan demand, which may signify a return to more intense deposit competition.
Also, loan growth has picked up again. “We expect business loans to act as the core engine of growth, backed by state drivers and improved economic outlook, as regulatory changes and compressing loan yields make retail loans less attractive,” said MBSB.
Down the line, asset quality issues, particularly for small, medium enterprise loans, may act as a ceiling to the business segment’s upside.
More stability in NIM, but upside is capped. A low-interest-rate environment is good for current account savings account growth and COF in general, but a pickup in loan growth should also lead to the return of intense deposit competition.
Expect more aggressive loan rebalancing as business loans surpass retail loans, making loan yield optimisation a more prominent discourse topic. —Nov 9, 2025
Main image: Hashtag.Al
The post Banking sector poised for stronger growth with business loan leading growth first appeared on Focus Malaysia.
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