Banks seen posting strong 1Q earnings, but pressure building on borrowers - MBSB IB

The investment bank noted that business loan momentum has started to weaken.

08 May 2026 06:46pm
The banking sector is expected to deliver a solid first-quarter calendar year 2026 (1Q CY2026) performance despite the ongoing West Asia conflict, although worsening cost pressures could prompt economic aid measures and possible Overnight Policy Rate (OPR) cuts.
The banking sector is expected to deliver a solid first-quarter calendar year 2026 (1Q CY2026) performance despite the ongoing West Asia conflict, although worsening cost pressures could prompt economic aid measures and possible Overnight Policy Rate (OPR) cuts.

KUALA LUMPUR - The banking sector is expected to deliver a solid first-quarter calendar year 2026 (1Q CY2026) performance despite the ongoing West Asia conflict, although worsening cost pressures could prompt economic aid measures and possible Overnight Policy Rate (OPR) cuts.

MBSB Investment Bank Bhd (MBSB IB), in its ‘1Q CY2026 Results Preview: War and Aid’ research note, said it maintained a ‘positive’ call on the sector, citing attractive dividend yields, ample liquidity and prospects for stronger non-interest income.

The investment bank said the impact of the conflict on asset quality and banking growth remained relatively limited in 1Q CY2026, with banks continuing to benefit from easing deposit competition, strong earnings momentum, topline growth and resilient loan expansion.

"While there are headwinds, the banking sector remains a solid defensive pick,” it said, noting that Malaysia’s geopolitical stability and steady economic growth continued to support investor sentiment.

However, the bank noted that business loan momentum has started to weaken, particularly in the small and medium enterprise (SME) segment, amid rising working capital pressures.

"To maintain local geopolitical stability and predictability, inflationary and cost-of-living pressures must be managed to reduce the impact on the public,” it said.

MBSB IB highlighted that measures aimed at easing cost pressures could be rolled out sooner than expected, with varying implications for the banking sector.

Among the possible measures are economic stimulus and aid packages to support business and retail loan growth, as well as a potential 25-basis-point OPR cut to lower financing costs and provide short-term relief to borrowers.

Meanwhile, the bank pointed out that key downside risks to its positive outlook include disruptions to economic growth that could slow asset expansion and weaken asset quality.

It added that potential OPR cuts may compress banks’ net interest margins in the short term, while any deterioration in asset quality could lead to higher provisioning requirements.

MBSB’s top sector picks are Hong Leong Bank Bhd, with a "buy” call and a target price of RM30.50, and AMMB Holdings Bhd, with a target price of RM7.57. - BERNAMA

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