Affin Bank faces margin pressure and higher provisions in the near term

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Affin Bank margin and provision pressure

Highlights

TA Securities expects Affin's net interest margin to contract slightly in the third quarter due to the price war and pressure from deposit competition.
Affin's actual cost of credit is expected to approach 30 basis points, compared with the original guidance of 13, due to repayment stress in the retail portfolio.
TA Securities cut its target price for Affin by 24 sen to RM2.19 but maintained its "buy" recommendation, with upside potential of more than 12% from the RM1.94 share price.

This article was translated from the original. Read the original version by our correspondent here.

Earnings pressure and cost of credit outlook

As reported by The Edge Malaysia, TA Securities expects Affin's net interest margin to contract slightly quarter on quarter in the third quarter amid the price war sweeping the banking industry. The research firm said competition for deposits typically intensifies toward year-end, making it a key headwind to near-term earnings.

Rising government bond yields are prompting customers to move cash from traditional savings accounts into money market instruments and short-term funds that offer higher returns. As low-cost current and savings accounts continue to decline, banks have to offer higher interest rates to attract depositors, driving up funding costs.

TA Securities also sees asset quality as a key focus ahead of the upcoming financial results, as repayment stress rises in the retail portfolio, particularly among lower-income borrowers affected by the higher cost of living and energy prices. The firm said the original 2026 cost of credit guidance of 13 basis points may be too low, with the actual figure potentially approaching 30 basis points.

Sector valuation and long-term outlook

In addition to operational pressures, TA Securities said sustained selling by foreign investors and weaker investor sentiment continue to weigh on banking sector valuations, despite sound business fundamentals. Accordingly, the firm cut its target price for Affin by 24 sen to RM2.19.

Even so, TA Securities maintained its "buy" recommendation on Affin, citing an attractive risk-reward profile, with upside potential of more than 12% from the last traded price of RM1.94. The firm forecasts Affin's 2026 net profit at RM540 million, unchanged from the previous year, before rising to RM591 million. It also maintained a positive view of the bank's long-term transformation strategy, stronger customer franchise and balance sheet growth.

In our earlier report on Bank Negara Malaysia's (BNM) monetary policy signals and expectations in the market, we explained how changes to BNM's guidance opened the door to potential interest rate adjustments as inflation risks remained under close watch. We also discussed the effects of this environment on the ringgit and local bond yield volatility, which are important indicators of liquidity conditions and funding costs in the financial system.

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