RHB Investment Bank Bhd (RHB Research) has maintained its strategic focus on Indonesian banks as the top regional pick, citing expected earnings rebounds and more attractive valuations. The research house retained a BUY recommendation on 13 of the 19 banks it covers, emphasising a tactical approach for 2025 amid global uncertainties, including US policy directions and Federal Funds Rate trajectories.

According to RHB Research, ASEAN domestic economies are expected to remain resilient, anchoring the financial sector's earnings despite external volatility. Indonesia's banking sector is positioned for a strong recovery, supported by stabilising liquidity and anticipated growth in small and medium-sized enterprises and retail loan demand. The research house highlighted the Prabowo administration's focus on consumer consumption as a potential trigger for broader economic activity in the country. However, tighter-than-expected liquidity remains a downside risk, though the outlook appears stable for now.

Meanwhile, Malaysian banks offer defensive earnings and attractive valuations, trading at cheaper levels compared to their Singaporean counterparts. The research house noted Malaysia's stable macroeconomic environment and the ongoing implementation of various economic masterplans as supporting factors for underlying banking activities. Upcoming clarity on Basel III reforms is expected to help Malaysian banks solidify capital management initiatives, further enhancing their already attractive dividend yields.

Singaporean banks were acknowledged as the most defensive play in the region, well-positioned to weather US$ strength and potential Federal Reserve rate cuts. Analysts projected limited upside potential for Singaporean banks due to muted earnings growth and capped valuations. However, robust dividend yields, supported by capital management initiatives following Basel III reforms, are expected to underpin investor returns.

Liquidity and capital management were highlighted as key areas of focus for the region's banking sector in the upcoming financial results. For Malaysian banks, the system loan-to-deposit ratio is nearing historical highs, raising questions about the ability to further manage deposit costs. In Singapore, banks are expected to provide more details on capital plans, leveraging their strong financial positions post-Basel III implementation. In Indonesia, improved liquidity conditions are set to reinforce the net interest margin recovery thesis.

RHB Research reiterated a barbell strategy for investors, advocating exposure to growth-driven Indonesian banks alongside defensive Singaporean counterparts. This approach is seen as a balanced response to the mixed market conditions expected in 2025. Malaysian banks remain a middle-ground option, offering earnings safety with better valuations compared to Singapore, although RHB Research expected more modest returns this year.