The Malaysian banking sector continues to shine with positive sentiment and robust prospects, prompting analysts to maintain an OVERWEIGHT call. This optimistic outlook follows Malaysia's second-quarter 2024 GDP growth of 5.9%, which surpasses the earlier forecast of 5.1%. This stronger-than-expected performance signals a more resilient economic environment, countering previous concerns about slowing growth due to inflationary pressures.

Analysts are particularly encouraged by the impact of foreign direct investments (FDI) on the financial services sector with OVERWEIGHT call.

The influx of FDI, expected to enhance the wider supply chain, promises to support loan growth and bolster the financial sector's performance. System loans growth is anticipated to remain resilient, with a forecast range of 5.5%-6.0% for 2024, up from 5.3% in 2023. Additionally, improved employment prospects and higher civil servant incomes are expected to help maintain repayments and asset quality.

The analysts highlight CIMB and ABMB as top picks for investors, given their strong potential for solid returns and impressive dividend yields. CIMB is projected to achieve a target price of RM7.60, while ABMB is forecasted at RM4.60. RHBBANK, another notable mention, is anticipated to benefit from asset quality improvements, with a target price of RM7.25 and a promising dividend yield of approximately 7%.

The Bank Negara Malaysia (BNM) recently reported that the 2QCY24 GDP growth was primarily driven by a 12.0% increase in investment, with significant contributions from the service and manufacturing sectors. The construction sector also showed a robust 17% growth, supported by infrastructure projects and a net inflow of RM9.1 billion in FDI. Despite this positive performance, BNM has maintained its GDP forecast for 2024 at 4%-5% due to potential uncertainties from commodity price fluctuations and a weak MYR.

The sector's outlook remains optimistic, with BNM noting potential upside risks from a tech up-cycle and faster implementation of investment projects. These factors could enhance investor interest in construction and utilities sectors, while also improving consumer sentiment and tourism activity.

The banking sector's performance is expected to remain strong, driven by continued demand for investment financing and corporate banking services. Household loans, including mortgages and hire purchases, are also anticipated to stay robust, supported by higher wages and improved economic opportunities. With a stable Overnight Policy Rate (OPR) of 3%, banks are well-positioned to adjust their asset yields and funding costs, further supporting sector growth.