Kuala Lumpur: Majority of Malaysian banks have environmental, social and corporate governance (ESG) ratings that surpass average benchmarks, aligning well with international standards and rivaling those of Singapore banks, said CIMB Securities Sdn Bhd.

According to BERNAMA News Agency, CIMB Securities noted that a number of Malaysian banks are rated leaders under the Morgan Stanley Capital International (MSCI) ESG ratings. Most of the Malaysian banks are rated AA, including AMMB, CIMB, Maybank, and RHB, matching the AA ratings awarded to Singaporean banks, namely DBS, OCBC, and UOB. Hong Leong and RHB secured an A rating, which falls under the MSCI average category. There are no MSCI ratings yet for Affin and Alliance bank.

CIMB Securities mentioned that while ESG ratings are not yet a key component of valuation, ESG leaders are likely to attract premium valuation in the longer run, as a better ESG rating means less risk of business disruptions, unfavorable rulings, and operational risks. This may be reflected in lower cost of equity. The firm retains its ‘overweight’ call for the sector, with Hong Leong, AMMB, and RHB continuing to be its favored selections.

Meanwhile, RHB Investment Bank Bhd indicated that results briefings for 2025 point towards a modest and stable year, as banks remain watchful over geopolitical developments. Domestically, a resilient gross domestic product and the ongoing execution of various development plans should be positive for loan demand. However, deposit growth continues to trail loan growth, and there is a need to monitor whether deposit competition heats up to support the banks’ funding needs.

RHB Investment Bank Bhd also highlighted that banks with overseas operations are wary of rate cuts and less favorable liquidity conditions putting potential pressure on net interest margin. On asset quality, the banks continue to monitor any pockets of softness, although these appear confined to certain segments and portfolios. The bank maintains an ‘overweight’ call on the sector.