Bank stocks attract investors on expectations of higher dividend yields

Bank stocks remain attractive to investors because of the potential for additional dividend yields and the limited downside risks to earnings, supported by robust loan provision buffers.

RHB Research emphasised that Malaysian banks continue to be a safe haven for investors amid ongoing geopolitical uncertainties and market volatility, driven by strong earnings performance and appealing dividend yields.

The banking sector started the year on a relatively strong footing compared to its regional peers, particularly in the domestic market, where its performance has remained flat year-to-date (YTD). This stands in contrast to the FTSE Bursa Malaysia KLCI (FBM KLCI) and FBM100, which registered declines of 6 per cent and 8 per cent, respectively.

"Guidance for 2025 points to a modest and stable year, partly in view of the geopolitical uncertainties. However, most banks were fairly optimistic on the domestic picture, where Malaysia is expected to drive loan growth for most banks with overseas operations.

"On net interest margin (NIM), the banks maintained a cautious stance, especially with respect to potentially tightening liquidity domestically and overseas – guidance was mostly for flat-to-a-slight squeeze in NIM," it said.

The firm stated that credit costs performed well in 2024, with banks expecting a return to more "normalised" levels in 2025.

"While the banks maintain a watchful eye over certain potential hotspots, they have not noted any significant increase in systemic risk across the portfolios – so we would not be too surprised should credit costs once again come in below guidance," it said.

RHB Research said the sector's net profit forecast for the financial year 2025 to 2026 (FY25-FY26) is expected to increase by 1-2 per cent annually.

"We expect sector FY25 profit after taxation and minority interests (PATMI) to grow by 6 per cent, underpinned by a 6 per cent rise in operating income and slight positive JAWs, albeit partly offset by higher credit costs as we assume lower overlay reversals," it adds.

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