Banks expected to remain resilient amid mounting 2H pressures

By the Editorial Team · Wednesday, September 16, 2026

CIMB Research reports that Malaysia’s banking sector posted a 4.1% year-on-year rise in core net profit in Q2 2026, supported by non-interest income growth and disciplined costs despite pressure on net interest margins. However, ongoing challenges like higher funding costs, market volatility, and rising bond yields could limit earnings growth, making capital optimization and asset quality key focus areas moving forward.

The Malaysian banking sector is projected to maintain resilience in the second half of the 2026 financial year despite facing multiple challenges, according to a recent analysis by CIMB Research. Factors such as sustained elevated global interest rates, increased market volatility, and tighter domestic funding conditions are expected to exert continued pressure on net interest margins (NIMs).

CIMB Research highlighted that banks entered the latter half of 2026 from a robust position. In the second quarter, the sector’s core net profit rose 4.1% year-on-year and 5.6% quarter-on-quarter to RM9.4 billion. This brought the first half-year total to RM18.3 billion, representing a 1.6% increase compared to the same period in 2025. The earnings recovery was broad-based, with most institutions reporting positive year-on-year growth.

The improved performance was driven by a rebound in non-interest income, steady loan growth, and continued cost discipline, all of which helped offset ongoing margin pressures. Non-interest income climbed 13.7% quarter-on-quarter, supported by recurring fees from wealth management, bancassurance, and client-related activities. Meanwhile, fund-based income remained relatively stable, growing modestly by 1.2% year-on-year and 0.4% quarter-on-quarter despite a 4.5-basis-point decline in NIMs during the quarter.

Looking ahead, CIMB expects margin pressures to persist in the coming months amid higher funding costs and increased competition for deposits. Market volatility is also likely to weigh on treasury and trading income. Nonetheless, asset quality is anticipated to hold steady.

The main challenge for banks in the second half will be converting healthy balance-sheet growth into stronger returns without compromising either funding discipline or asset quality. CIMB predicts a gradual recovery in return on equity, with capital optimization playing a potential role in enhancing shareholder returns. The implementation of Basel 3.1 and robust capital buffers could enable some banks to increase payout ratios or declare special dividends.

Public Bank Bhd, Hong Leong Bank Bhd, and Alliance Bank Malaysia Bhd are identified as having notable capacity to boost payouts under the revised capital adequacy framework.

An analyst from a separate bank-backed brokerage also described the sector’s second-quarter results as solid but maintained a “neutral” stance on the banking sector. The analyst pointed to ongoing pressures from rising wholesale deposit rates, which intensify competition for retail deposits, alongside robust loan pipelines and elevated loan-to-deposit ratios.

Additional risks include the impact of rising bond yields on non-interest income as well as a gradual increase in gross impaired loans paired with declining loan-loss coverage. This environment suggests banks may no longer be able to rely on benign credit costs to underpin their earnings growth moving forward.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.