Banks lift outlook as second-quarter rebound seen on stabilising markets and credit growth

KUALA LUMPUR, 30 AUGUST 2026 —

Banks Set for Recovery in 2Q26 as Sector Stabilises, Analysts Say

Analysts remain cautiously optimistic, highlighting solid loan growth, stable net interest margins (NIMs), strong capital buffers and attractive dividend yields. However, earnings growth expectations have been trimmed due to persistent geopolitical and macroeconomic uncertainties. The Federal Reserve’s June meeting, which concluded yesterday, is not expected to influence Bank Negara Malaysia’s overnight policy rate (OPR), which is likely to remain at 2.75% for the rest of the year.

“It is likely that our central bank will maintain the OPR at the current 2.75% level moving into the second half of the year, providing more stability for the banking sector and the overall capital markets,” said Vincent Lau, head of equity sales at Rakuten Trade.

CIMB Research has maintained its “overweight” call on the sector, noting that Malaysian banks are entering 2Q26 with improved earnings resilience driven by incremental NIM upside. The research house also expects sector-wide non-interest income (NOII) to recover sequentially as market conditions stabilise and recurring fee-based income continues to grow.

RHB Research similarly anticipates a stronger 2Q26, with marked-to-market losses from 1Q26 stabilising and investor sentiment improving. The first quarter, however, reflected a softer start to the year, with BIMB Research reporting that sector core earnings slipped 5.4% quarter-on-quarter due to weaker net interest income and NOII. On a year-on-year basis, earnings remained flat.

First-Quarter Performance Mixed, but Loan Growth Remains Strong

Malaysian banks largely met earnings expectations in 1Q26, with Maybank, Public Bank, RHB Bank, Hong Leong Bank, CIMB Group, AMMB Holdings and Alliance Bank reporting results broadly in line with projections. MBSB Bhd lagged due to weaker fund-based income and higher credit loss charges.

Credit demand remained a key earnings driver, supported by lending to corporates, small and medium enterprises (SMEs) and selected retail segments. BIMB Research noted that loan growth accelerated to 5.4% year-on-year in the first quarter from 4.5% in the preceding quarter, with most banks recording stronger lending momentum.

Analysts have grown more cautious about external risks, with CIMB Research flagging macro uncertainty and geopolitical tensions as key constraints. While the conflict in the Middle East is not expected to have a significant direct impact on Malaysian banks, lenders are monitoring potential second and third-order effects on sectors such as transport, logistics, agriculture, construction and infrastructure, as well as SMEs.

Rakuten’s Lau suggested that businesses may benefit from lower oil prices in the latter half of 2026, potentially freeing up resources for loan growth. “As such, this could provide room for loan growth, especially since there is no uptake in gross impaired loans so far this year,” he said.

NIMs Stabilise, Deposit Competition to Remain Manageable

After prolonged funding cost pressures, banking sector NIMs began to stabilise in 1Q26, with BIMB Securities reporting a sector-wide NIM of 1.99%. Most banks recorded quarter-on-quarter improvements, and CIMB Research noted that Maybank expects a sustainable NIM baseline of 2.10% from 2Q26 onwards as higher deposit rates take effect.

Deposit competition is expected to remain stable through 3Q26 before picking up towards year-end due to seasonal factors, though BIMB Securities does not anticipate irrational pricing given slower economic growth.

Financial market volatility in 1Q26 unevenly impacted trading and foreign exchange-related income, with banks holding larger treasury operations facing greater earnings swings. Meanwhile, lenders such as RHB Bank, Hong Leong Bank, Public Bank, AMMB, Alliance Bank and Affin Bank are focusing on building more stable, recurring income streams to reduce reliance on volatile market-driven earnings.

Cost Pressures and Asset Quality Remain Key Focus Areas

Despite continued spending on technology and digitalisation, cost discipline remained a bright spot in 1Q26. However, CIMB Research warned that operating cost pressures are gradually building across the sector due to sustained technology investments, higher personnel costs, branding initiatives and regulatory requirements.

Asset quality remained broadly stable, and while lenders have adopted a more conservative approach to provisioning, RHB Research believes existing provisions are adequate under current assumptions. “Assuming the base case scenario that elevated energy prices do not persist, banks think existing overlays and provision buffers should be sufficient to cushion potential emerging risks,” the research house said.

Earnings Growth Forecasts Moderate, but Valuations Remain Attractive

Analysts expect earnings growth to remain moderate this year. BIMB Securities forecasts sector earnings to expand by 4.5% in 2026, compared to 3.4% in 2025, resulting in a return on equity (ROE) of 10.1%. RHB Research, however, projects a more conservative 2.5% year-on-year growth in profit after tax and minority interest for FY26, citing 3% operating income growth offset by negative jaws and higher credit costs.

Despite softer growth expectations, BIMB Securities views sector valuations as attractive, trading at around one times price-to-book ratio. The research house also noted that banks are well-positioned to navigate potential risks, supported by strong capital buffers and stable funding conditions.

Outlook: Stability Ahead, but External Risks Persist

The banking sector’s recovery in 2Q26 is expected to be driven by stabilising market conditions, improving NIMs and resilient credit demand. However, analysts caution that external risks—including geopolitical tensions and macroeconomic uncertainties—could weigh on growth.

Lau of Rakuten Trade highlighted that while positive external factors such as the potential listing of SpaceX on Nasdaq and the sustained performance of the S&P 500 could uplift sentiments, their spillover effects on the Malaysian market may take time to materialise.

For now, Malaysian banks appear well-prepared to weather near-term challenges, with analysts maintaining a constructive outlook on the sector’s long-term fundamentals.