This article first appeared in The Edge Malaysia Weekly on January 12, 2026 - January 18, 2026

BANK earnings are expected to be stronger this year than in 2025, even as global challenges persist amid tariff uncertainties and geopolitical conflicts. The improvement is underpinned by resilient domestic economic growth, easing pressure on net interest margins (NIM) and a greater focus on higher-yielding segments.

RHB Research expects the sector’s net profit growth to rebound to 4.8% this year, after having slowed to an estimated 1.6% last year, from 7.8% in 2024.

Analysts remain optimistic about the sector’s investment prospects, noting that lenders are heading into 2026 on fundamentally sound footing and offering attractive dividend yields. Despite most banking stocks having rallied in recent months — with Malayan Banking Bhd (KL:MAYBANK), Public Bank Bhd (KL:PBBANK), RHB Bank Bhd (KL:RHBBANK), Hong Leong Bank Bhd (KL:HLBANK),  AMMB Holdings Bhd (KL:AMBANK) and Alliance Bank Malaysia Bhd (KL:ABMB) hitting 12-month highs last week — analysts believe many still have room to run.

A survey of eight research houses shows that all have positive investment recommendations on the sector. The most frequently cited top stock picks are Hong Leong Bank, CIMB Group Holdings Bhd (KL:CIMB) and Maybank.

“We upgrade Malaysia banks to ‘overweight’ from ‘neutral’, despite the strong rally in recent months. In our view, the sector still has room to re-rate into 2026, underpinned by: (i) an early-stage capital management cycle; (ii) undemanding valuations at 0.92 times price-to-book value, trading two standard deviations below the pre-Covid-19 mean of 1.21 times; (iii) resilient earnings visibility; and (iv) the US Federal Reserve easing cycle supporting foreign buying and emerging markets rotation play,” says AmInvestment Bank Research in a report last week. The house expects sector profits to grow 4.9% year on year.

Among individual banks, Maybank will be closely watched for its new corporate strategy, which is expected to be unveiled this month. Its previous plan, known as M25+, concluded last year. 

Bank Islam Malaysia Bhd (KL:BIMB) is set to have a new group CEO following the departure of its chief of seven years, Datuk Mohd Muazzam Mohamed, at the end of last year. The bank’s group chief business officer for retail banking, Mizan Masram, is currently the officer in charge.

At CIMB Group, its Indonesian subsidiary, Bank CIMB Niaga, is expected to spin off its Islamic banking business by the end of this year. Investors will also be monitoring developments at CIMB Investment Bank, which was among 12 parties named in a RM1.38 billion lawsuit filed by sukuk holders of the MEX II highway last week. Analysts have not altered their positive stance on CIMB Group, which Bloomberg data shows currently has 17 “buy” and two “hold” recommendations, with no “sell” calls.

Attention will also be on Public Bank, as investors watch whether the family of its founder, the late Tan Sri Teh Hong Piow, further trims their 21.38% stake this year, and by how much. This follows the disposal of 50 million shares, or 0.26%, last October. In October 2024, the Teh family disclosed that it is required to gradually reduce its stake to 10% within five years via a restricted offer for sale to comply with the Financial Services Act.

Meanwhile, Maybank and Alliance Bank will each move into new corporate headquarters this year. Alliance Bank, whose employees have already relocated to Menara Alliance Bank in Jalan Ampang, Kuala Lumpur, will officially launch the building this month. Maybank is expected to begin moving staff to the Merdeka 118 building — the world’s second tallest skyscraper — from the second quarter.

For the sector, here are five things to watch.

The outlook for NIM appears more promising this year after banks struggled to mitigate margin compression following Bank Negara Malaysia’s 25-basis-point (bps) cut in the overnight policy rate (OPR) last July. NIM, a key measure of a bank’s profitability, reflects the difference between the interest earned on loans and the interest paid on deposits.

Analysts note that the repricing of deposits following last year’s decline in benchmark rates could pave the way for improved NIMs. Most expect Bank Negara to keep the OPR — which influences lending rates — unchanged at 2.75% throughout the year.

“We expect a stable OPR, and while regional policy and benchmark rates could ease further, this is not expected to be as severe as in 2025, with much of the impact on asset yields already felt last year. For this year, we expect the repricing of deposits to filter through, from last year’s OPR cut as well as lower regional benchmark rates,” RHB Research says.

Supporting this view, the quarter-on-quarter increase in the three-month KLIBOR (Kuala Lumpur Interbank Offered Rate) in the final quarter of 2025 (4Q2025) was a muted 6bps, compared with the 18bps rise in 4Q2024 and 20bps increase in 4Q2023. The three-month KLIBOR reflects the average rate at which banks lend ringgit funds to one another and is commonly used in loan pricing.

“This could suggest the seasonal deposit competition [in 4Q2025] was not as intense as recent years, which should also be positive for NIM. All in, we expect an improvement in 1H2026 NIM versus 2H2025, and the momentum could continue into 2H2026 if banks stay disciplined on funding,” RHB Research opines.

Kenanga Research cautions that, on a full-year basis, there may still be a low single-digit compression across the industry. “Standouts could be banks which have already demonstrated optimum asset and liability management such as Maybank and AMMB, which registered a sequential increase in quarterly NIMs [in the July-September quarter last year] while peers reported a decline.” Banks will put out their October-December quarter results by the end of February.

Some banks, including Hong Leong Bank and Public Bank, may deliver better dividends this year on the back of healthy earnings growth and a strong capital position. Bank Negara’s new Basel III-aligned capital framework on credit risk — which takes effect from July — could lead to some banks unlocking excess capital that can be returned to shareholders, analysts note.

The new framework will narrow the capital gap between lenders using the standardised and internal ratings-based methods for credit risk calculations, thus improving comparability across the sector.

“Banks under the standardised approach are set to adopt new Basel guidelines on credit risk from July 1. This could free up 50bps to 100bps for banks like Hong Leong Bank and Public Bank, paving the way for capital management initiatives,” RHB Research says.

AmInvestment Bank Research gathers that most banks will retain excess capital post-implementation of the new credit risk framework. “That said, Hong Leong Financial Group Bhd (KL:HLFG), Hong Leong Bank and Public Bank emerge as the strongest dividend upside candidates, thanks to low dividend payout ratios of 45% to 60% (versus Maybank’s sector-leading 73%) and gearings of less than 10 times (versus Maybank’s 11.5 times). Also, the trio’s dividend yields of 4% to 5% already exceed their 5-/10-year averages of 3% to 4%.”

The research house believes that Malaysian banks are only at the cusp of the capital management story, with scope for further share price gains heading into 2026. “This follows a familiar path seen in Singapore, thanks to well-capitalised balance sheets, durable return-on-equity (ROE) generation and undemanding valuations. Notably, Malaysian banks are still early into this journey (just two months in), while Singapore peers drifted higher even 10 months post-capital management announcements.”

Recall that CIMB Group surprised the market last November in its 3Q2025 results briefing by unveiling a RM2 billion capital return package, which it plans to complete by end-2027. “Apart from helping lift dividend yields, we estimate this has helped its FY2026-FY2027 ROE by 16bps to 24bps. While we think other well-capitalised peers such as AMMB may have the potential to return excess capital to investors, its strong share price run up last year suggest much of this may have already been priced in,” says RHB Research.

As it stands, the average Common Equity Tier 1 (CET-1) ratio of the Malaysian banking sector is a comfortable 14.6%, a level generally considered high by analysts. Banks are generally content with a level of at least 13.5%.

Mergers and acquisitions (M&A) cannot be ruled out this year, whether at the bank level or within units like asset management and insurance/takaful. The banks to watch are Alliance Bank, Affin Bank and AMMB.

There will be much interest in whether Singapore-headquartered DBS Group, which is Southeast Asia’s largest bank by assets, makes headway in its reported plan to acquire a stake in Alliance Bank.

The Edge reported last November that DBS is said to be pursuing the matter through government-to-government talks. It is keen to advance the matter before Malaysia holds its next general election, given the current warm relations between both governments.

Bloomberg later reported, citing people familiar with the matter, that DBS had filed a revised application with Bank Negara to acquire up to 30% of Alliance Bank. It had previously applied to acquire as much as 49%, but had not heard back from the regulator.

The ball is now said to be in Bank Negara’s court. It remains to be seen if DBS will be successful as The Edge understands that some of the local banks are lobbying the government against DBS’ entry, given the already intensely competitive environment. DBS is the only one of Singapore’s three banks that does not have a presence in Malaysia.

Both DBS and Alliance Bank, the smallest banking group in Malaysia by assets, are backed by Singapore state investor Temasek Holdings Pte Ltd.

Meanwhile, Affin Bank, with Sarawak as its 31.25% shareholder, had made no secret of the fact that it is seeking opportunities to grow bigger via M&A. The country’s second smallest lender by assets is understood to be open to acquiring complementary businesses or even a bank.

It is currently in the process of acquiring Pheim Asset Management Sdn Bhd for RM50 million cash in a deal that is expected to be completed by 1Q2026.

As for AMMB, the prospect of M&A arises given that there is often talk that its key shareholder — founder Tan Sri Azman Hashim, an octogenarian with an 11.84% stake — may be open to paring some of his shares at a good price.

There will be several other M&A in the asset management space this year, with MBSB Bank Bhd (KL:MBSB) said to be in talks with a potential buyer for its wholly-owned MIDF Amanah Asset Management Bhd, after earlier talks with Australia’s Salaam group hit a snag.

Stronger momentum can be expected this year from the five digital banks licensed by Bank Negara.

With the public launch of KAF Digital Bank and Ryt Bank in August last year, all five are now in operation, the oldest being GXBank which launched on Nov 30, 2023. There will be more lending products from the banks this year, experts say.

“There’ll definitely be stronger traction from the digital banks this year. I think GXBank is one to watch. It recently released its GX 3.0 strategy, under which it is looking at supercharging and going harder in terms of growth and in trying to roll out more products, especially lending products, and cornering micro and small businesses.

“So, we will see a lot more aggressive acquisition war from the likes of GXBank,” Shankar Kanabiran, a financial services advisory partner at EY Malaysia, tells The Edge.

“The other one I think is interesting to watch is Ryt Bank, which has a lot of play on AI (articifial intelligence). Boost Bank is doubling down on micro SMEs (small and medium enterprises). Then you have the Islamic digital banks KAF Digital Bank and AEON Bank, with [the latter] targeting its retail ecosystem, supply chain financing and so on. So, I would say that in 2026, you will start seeing a lot more lending products coming out.”

Notably, GXBank, which expects to break even in 2027 — its fourth year of operations — may be the first to graduate from its foundational phase this year. It plans to ask Bank Negara in August for approval to graduate from the foundational phase, its CEO Kaushik Chowdhury told The Edge in an interview last November.

Digital banks in Malaysia are subject to a RM3 billion asset cap during their foundational phase, covering their first three to five years. GXBank’s assets stood at RM1.58 billion as at end-June last year.

Meanwhile, KAF Digital Bank is expected to have a new CEO this year, as its current CEO Rafiza Ghazali will be leaving the bank at the end of this month to pursue other opportunities.

An interesting development to watch this year is the Consumer Credit Act 2025 which is expected to take effect in 1Q2026. This will enable the government to license non-bank credit providers, including Buy Now, Pay Later (BNPL) companies, which currently operate without supervision.

The Act will provide broader consumer protection by regulating excessive fees and through the practice of ethical debt collection.

“The main objective of this Act is to regulate the consumer credit sector and enhance consumer protection, especially for those dealing with currently unregulated lenders. We want to ensure they operate fairly, responsibly and transparently,” the Consumer Credit Oversight Board (CCOB) task force chief, Abu Hassan Alshari Yahaya, said last November.

CCOB, which will become the Consumer Credit Commission, is expected to issue mandatory guidelines and standards that all licensed lenders and credit service providers must comply with. “We will provide clarity on ‘fit and proper’ requirements and the operating standards that must be met when the licensing process begins,” Abu Hassan said.

Under the Act, lending companies will undergo due diligence and assessment to determine their ability to operate fairly when offering licensed BNPL services.

BNPL and other non-bank credit providers will be expected to follow responsible lending rules: assess creditworthiness and affordability; ensure fair contracts and transparent fees; and adopt ethical debt collection practices.

Having fast gained popularity over the years, BNPL requires safeguards to ensure consumers don’t fall into a debt trap. A survey conducted by the CCOB Task Force in 2024 found that 73% of BNPL users are from the lower-income group, with a monthly salary below RM5,000.

In Malaysia, the number of BNPL transactions grew from 30.6 million valued at RM2.7 billion in the first half of 2023 (1H2023) to 102.6 million worth RM9.3 billion in 1H2025.

As at Sept 30 last year, BNPL loans stood at RM4.2 billion across seven million accounts, with RM147.7 million, or 3.5%, overdue from 185,465 users. The overdue portion is thus far considered manageable.

There are 16 players in Malaysia offering BNPL services, of which three — SPayLater by ShopeePay, Atome, and PayLater by Grab — dominate the market. 

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