Kuala lumpur: Higher dividend payouts and return on equity (ROE) improvements will be key catalysts to the banking sector going into 2026.

According to BERNAMA News Agency, CIMB Securities Sdn Bhd stated that although the sector's core net profit growth is expected to remain subdued, Malaysian banks have transitioned from cyclical earnings growth to a phase of 'capital-efficient growth' driven by risk-weighted assets (RWA) optimisation. This strategic shift is anticipated to enhance capital headroom and support more effective capital optimisation and reallocation.

CIMB Securities identified Public Bank Bhd and Hong Leong Bank Bhd as fitting well within this capital optimisation theme. Reflecting this positive outlook, the firm has upgraded the sector's rating to overweight from neutral. This upgrade follows rating enhancements for Malayan Banking Bhd and AMMB Holdings Bhd, along with target price increases for Maybank, Public Bank, RHB Bank, AMMB, and Hong Leong Bank.

Despite these positive developments, CIMB Securities predicts that bank earnings will remain relatively flat in the fourth quarter of 2025. This is due to the easing of the net interest margin compression following the July 2025 overnight policy rate cut. However, non-interest income is expected to remain robust, supported by activities in wealth management, treasury, and foreign exchange.