KUALA LUMPUR (Oct 1): An inflection point is seen in the Malaysian banking sector as loan demand rebounds in tandem with an improving economic outlook as the country’s Covid-19 woes fizzle out, according RHB Investment Bank Bhd and Hong Leong Investment Bank Bhd (HLIB) on Friday.

RHB analysts Liew Wai Hoong and Fiona Leong wrote in a note that although Malaysia’s August 2021 loans shrank as the impact of Covid-driven movement restrictions continued to unfold, RHB sees early signs of improvement in the banking sector.

"System loan demand has begun to rebound as the government gradually relaxes restrictions,” Liew and Leong said.

HLIB analyst Chan Jit Hoong, meanwhile, wrote in a note that the banking sector’s risk-reward profile continued to skew favourably to the upside as most negatives had been considered by the market. 

"In our opinion, Covid-19 woes will likely fizzle out in 2022, while the state of the economy and banking sector will only get better in time. Furthermore, [banking-sector] valuations are undemanding and there is ample liquidity in the market,” Chan said.

RHB and HLIB both maintained their "overweight" calls on the banking sector, according to the analysts.

RHB’s top picks for the banking sector are Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and AMMB Holdings Bhd.

On the other hand, HLIB has "buy" calls for shares in Maybank, Public Bank Bhd, RHB Bank Bhd, BIMB Holdings Bhd and Affin Bank Bhd, according to Chan.

"For large-sized banks, we like Maybank (target price [TP]: RM9.40) for its strong dividend yields and Public Bank (TP: RM4.50) for its defensive qualities over CIMB (TP: RM5.10),” Chan added.