Overview of Malaysia’s Banking Sector in 2025

Affin Hwang Investment Bank Berhad provides a detailed and insightful look into Malaysia’s banking and financial services sector for 2025. The report identifies key themes shaping the sector, including Malaysia’s competitive positioning, structural reforms, and emerging growth opportunities in areas like renewable energy (RE), electric vehicles (EV), and data centers (DC). With projections for easing global interest rates, a recovery in global trade, and robust investment activities, the banking sector is poised for robust growth.

Top Stock Recommendations and Analysis

The report highlights several standout performers in Malaysia’s banking sector, providing detailed analysis and stock recommendations for each institution.

Maybank: Leading the Transformation

Recommendation: BUY

Target Price: RM12.10

Current Price: RM10.34

Maybank is positioned as a top pick for 2025, with its ambitious M25+ Strategy driving its transformation into a regional banking powerhouse. The bank aims for a 2025 ROE target of 11-12%, leveraging its pivot to higher-return sectors such as infrastructure, renewable energy, and technology. Maybank’s wholesale banking arm, Group Global Banking (GGB), is aligning with these priorities, further diversifying its portfolio away from low-return traditional mortgages.

Other key strategic initiatives include strengthening its transactional banking capabilities, scaling up mid-corporate and SME banking operations, and targeting leadership in both insurance (Etiqa) and Islamic banking. Notably, Maybank’s ASEAN market exposure, particularly in Malaysia (70% profit contribution) and Singapore (21%), underscores its competitive advantage.

Asset quality improvements, cost-to-income ratio optimization (forecasted to drop below 45% post-2025), and an attractive dividend yield of 6.3-6.4% further solidify Maybank’s position as a top investment choice.

RHB Bank: A Strategic Performer

Recommendation: BUY

Target Price: RM7.80

Current Price: RM6.48

RHB Bank has demonstrated impressive financial performance, with notable improvements in net interest margin (NIM) due to optimized deposit costs and disciplined loan pricing. The bank’s NIM increased from 1.77% in 4Q23 to 1.91% in 3Q24, driven by CASA expansion and a rebalanced deposit portfolio.

Credit recovery initiatives have been pivotal, resulting in lower net credit charges. Non-interest income (NOII) is expected to be a significant growth driver in 2025, bolstered by a strong capital market deal pipeline, forex gains, and renewed bancassurance deals. RHB’s new strategic plan for 2025 aims to elevate its regional presence while reinforcing its domestic market strength.

With an attractive dividend yield of 6.3-6.4% and a payout ratio of ~60%, RHB Bank remains a top pick for investors.

CIMB Group: Positioned for Sustainable Growth

Recommendation: BUY

Target Price: RM9.00

Current Price: RM8.17

CIMB Group’s robust presence in ASEAN markets such as Malaysia, Indonesia, Singapore, and the Philippines positions it for sustainable growth. The bank achieved key performance indicators (KPIs) in 9M24, including an ROE of 11.7% and a cost-to-income ratio (CIR) of 45.9%. Asset quality continues to improve, with a gross impaired loan (GIL) ratio of 2.3% in 3Q24.

CIMB’s strategic priorities include NIM management, tactical loan book expansion, and cost optimization. The bank’s new strategic plan, set for launch in March 2025, will provide further insights into its growth trajectory. With a solid CASA franchise and a strong track record in capital markets, CIMB remains a compelling investment option.

Hong Leong Bank: Consistent Performance

Recommendation: BUY

Target Price: RM25.00

Current Price: RM20.34

Hong Leong Bank stands out for its consistent performance, with a focus on the domestic retail and SME market. The bank’s NIM has improved for five consecutive quarters, reaching 1.92%. Asset quality remains exemplary, with a GIL ratio of just 0.54% in 1QFY25.

With an ROE target of 12% for FY25 and potential writebacks of RM574 million in overlays, Hong Leong Bank is well-positioned for continued growth.

Public Bank: Leveraging Strengths

Recommendation: BUY

Target Price: RM5.36

Current Price: RM4.44

Despite challenges such as a net loss from Public Financial HK Ltd, Public Bank is leveraging its strong retail and SME franchise to drive growth. The bank maintains sound asset quality and is forecasted to achieve NIM recovery of 2.2-2.22% between 2024 and 2026.

Trading at a favorable P/BV of 1.43x, Public Bank offers an attractive investment opportunity backed by an ROE of over 12%.

Alliance Bank: Niche Opportunities

Recommendation: HOLD

Target Price: RM4.75

Current Price: RM5.24

Alliance Bank focuses on niche segments such as SMEs and affluent consumers. The bank’s small size enables swift and selective market penetration. However, slippage in its CET1 ratio and potential regulatory hurdles from DBS’s potential entry pose challenges.

Key assumptions for FY25-27 include a NIM of 2.42-2.5%, loan growth of ~8%, and an ROE of 10%.

AMMB: Work in Progress

Recommendation: HOLD

Target Price: RM5.80

Current Price: RM5.68

AMMB continues to reshape its asset and loan portfolio, aiming for a NIM of 2% by FY25. The bank’s “Winning Together” strategy focuses on revamping business and retail banking units while expanding into global supply-chain funding.

Despite ambitious targets such as an ROE of 11-12% by FY29, challenges in revamping the retail banking unit remain a significant hurdle.