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Malaysia Banks Outlook 2025: Loan Growth Exceeds Expectations, GIL Trends Down

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Comprehensive Analysis of Malaysian Banks – Key Insights and Recommendations

Comprehensive Analysis of Malaysian Banks: Key Insights and Recommendations

Date: January 2, 2025

Broker: CGS International

Sector Overview: Strong Performance in 2024

The Malaysian banking sector demonstrated resilience and growth in 2024, with loan growth exceeding expectations. Gross impaired loans (GIL) fell, improving asset quality, while banks maintained robust financial health. The sector is forecasted to maintain strong momentum in 2025, albeit with slight deceleration due to potential headwinds in specific loan subsegments like auto loans.

Highlighted Companies: Detailed Analysis and Recommendations

1. AMMB Holdings

Recommendation: Add | Target Price: RM6.14 | Current Price: RM5.48

AMMB Holdings is poised for growth, supported by an expected expansion in its net interest margin (NIM) in FY3/25 and further write-backs in its management overlay (MO). The stock is trading at an attractive price-to-earnings (P/E) ratio of 9.62x for Dec-24F, declining to 8.53x by Dec-26F. Its price-to-book value (P/BV) ratio also reflects upside potential, falling from 0.89x in Dec-24F to 0.79x in Dec-26F. Dividend yields are projected to rise steadily from 4.16% in Dec-24F to 4.69% in Dec-26F, making it a solid choice for income-focused investors.

2. Hong Leong Bank

Recommendation: Add | Target Price: RM31.40 | Current Price: RM20.56

Hong Leong Bank (HLB) stands out as a top pick due to its defensive qualities against credit risks, backed by one of the lowest GIL ratios in the sector. Additionally, the bank showcases strong growth prospects, driven by above-industry loan growth and significant contribution from its associate, Bank of Chengdu. With a P/E ratio of 10.29x for Dec-24F, reducing to 9.16x by Dec-26F, and a dividend yield projected to rise from 3.66% in Dec-24F to 4.37% in Dec-26F, HLB offers a balanced mix of growth and income.

3. Public Bank Bhd

Recommendation: Add | Target Price: RM5.57 | Current Price: RM4.56

Public Bank is another top recommendation, benefiting from potential write-backs in its management overlay, which stood at approximately RM1.5 billion as of end-Sep 2024. The bank also anticipates earnings accretion from its acquisition of LPI. With a P/E ratio of 12.88x for Dec-24F, declining to 11.37x by Dec-26F, and a dividend yield increasing from 3.88% in Dec-24F to 4.40% in Dec-26F, Public Bank combines stability with growth.

4. CIMB Group Holdings

Recommendation: Add | Target Price: RM9.00 | Current Price: RM8.20

CIMB Group Holdings is positioned for steady growth, with a P/E ratio of 11.4x for Dec-24F, dropping to 10.5x by Dec-25F. Its dividend yield remains robust at 5.7% for Dec-24F and Dec-25F. The bank’s focus on enhancing ROE and NIM makes it a compelling investment opportunity within the sector.

5. RHB Bank Bhd

Recommendation: Add | Target Price: RM7.25 | Current Price: RM6.48

RHB Bank offers attractive valuations with a P/E ratio of 9.3x for Dec-24F, reducing to 8.8x by Dec-25F. The stock also provides a compelling dividend yield of 5.7% for Dec-25F. The bank’s focus on enhancing its loan growth and asset quality positions it well for sustained performance.

Emerging Trends: ESG and Green Financing

Environmental, Social, and Governance (ESG) practices have become a focal point for Malaysian banks. Maybank is highlighted as the ESG leader in the sector due to its early adoption of ESG guidelines, including its Risk Acceptance Criteria and dedicated task force for advising high-risk clients. Banks are increasingly focusing on green financing, though it currently accounts for less than 2% of total loans for most banks. Maybank and Alliance Bank have set ambitious long-term targets for sustainable finance, with Maybank aiming for RM80 billion and Alliance targeting RM5 billion.

Sector Risks and Challenges

Despite the positive outlook, potential downside risks include weaker-than-expected economic growth, inflationary pressures, and elevated deposit competition. Changes proposed by Bank Negara Malaysia, such as abolishing the Rule of 78 and reducing the maximum tenor for personal financing, could minimally impact banks but are unlikely to cause significant disruption.

Disclaimer: This article is based on the financial report dated January 2, 2025, prepared by CGS International. The content is for informational purposes only and does not constitute financial advice.


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