Kuala lumpur: MBSB Investment Bank Bhd has maintained a ‘neutral’ call on the banking sector as headwinds persist, while tailwinds vary on a case-by-case basis, with the market continuing to watch this week’s key economic data release. MBSB expects a drag from net interest margin compression, with non-interest income windfall providing some offsets.

According to BERNAMA News Agency, MBSB notes that most banks are already well-buffered, and thus, only a few instances of larger macroeconomic provisions are expected. The investment bank anticipates that major recoveries of a large oil and gas exposure will commence in the second half of 2025.

For asset quality, MBSB indicates that while overall asset quality should not worsen dramatically, there is an anticipated uptick in select segments. Several banks are highlighting rising impairments in residential mortgages, pointing to potential asset quality pressures. However, recoveries could provide more upside, despite a mediocre loan growth outlook.

Citing Bank Negara Malaysia (BNM), MBSB mentions that BNM reported sluggish loan growth this quarter. Nonetheless, leading indicators show a promising recovery from last quarter’s festive slump. Additionally, dividend yields remain attractive, with several banks planning to increase payouts.

MBSB maintains a ‘buy’ call on Public Bank Bhd, with a target price of RM4.77, supported by its excellent asset quality and retail-led approach, which makes it less dependent on business loans. At 11 am, Public Bank’s shares rose by three sen to RM4.36, with 1.54 million shares traded.