MIDF Research noted that the net interest margin (NIM) improved in Q1, while non-interest income (NOII) presented a mixed picture, with stronger fee contributions but varied non-fee performance.

In a statement, the research firm highlighted that provisions were more normalised, with some excellent performances.

“However, steep wage inflation has plagued industry operating expenses and is likely to persist.

“Loan growth was solid, despite initial expectations of a weak first half (H1), and liquidity was less of an issue, though some banks with weaker deposit franchises fared poorly,” it said.

Looking forward, MIDF said it’s expected that the cost of funds will continue to improve, while there isn’t an anticipation of severe loan yield compression for now.

“Large-scale infrastructure projects are expected to drive business loans in H2, while the retail pipeline remains resilient.

“The NOII outlook is attractive, with better investor demand, strong loan growth, and large projects acting as retail and wholesale drivers,” it added.

Meanwhile, it said the outlook for current account savings accounts and deposits will vary between banks, but initiatives by the government and Bank Negara Malaysia are strengthening local liquidity.

“As a fallback, most banks remain solid dividend picks. However, several players are undervalued due to negative sentiment or initial expectations of weaker sector performance in 2024,” it noted.

MIDF’s top picks include Public Bank and Hong Leong Bank, which have a ‘buy’ call with target prices of RM4.78 and RM21.38 respectively.

MIDF projected that Public Bank’s dividend payouts will gradually improve, with significant writebacks expected in the 2024 financial year.

Hong Leong Bank’s net writebacks are anticipated next quarter, marking four consecutive quarters of such writebacks.

CIMB, Bank Islam and AmBank were also recommended as good picks by MIDF.