RHB thinks the CET-1 ratios at the sector and system level are generally supportive of future business growth and dividends without further need for capital-raising exercises.
“That said, we think the capital spotlight could shift to Affin, given its capital levels and aggressive loan growth plans,” said RHB in the recent Malaysia Sector Update Report.
Their thesis for the sector remains, amid ongoing market uncertainty, we think Malaysia banks provide a defensive shelter, given decent dividends, while earnings should prove to be relatively steady.
As at Dec 2024, the domestic banking system commanded a CET-1 ratio of 14.3%, a figure which had remained largely flat throughout the year.
At the individual level, most Malaysia banks under their coverage were well capitalised too, as all maintained group CET-1 ratios of 13% or above. 
At the bank level, the same held true with the exception of banks such as Affin and Public Bank. Between the two, RHB thinks Affin’s capital position may attract investors’ scrutiny.
Affin’s capital levels peaked in 2022 post disposal of its asset management arm, but the CET-1 ratio has fallen almost 3 points since, in tandem with Affin’s above-industry loan growth.
Given its ambitious financial year 2025 (FY25) loan growth target of 12%, and our projection for FY25 profit after tax and minority interests to stay flat year-on-year, RHB estimates its group and bank level CET-1 ratios could slip by another 90 basis points and 70 basis points to 12.3% and 11.4% each by end-2025, assuming a 40% FY25 dividend payout.
Assuming no dividend payouts, group/bank CET-1 would reach 12.6%/11.6%, still on the low end.
At this juncture, raising equity could be challenging for Affin, given tough market conditions and its subdued mid-single digit return on equity.
On top of business as usual profit generation, Affin had previously highlighted that it is exploring a potential transition to the internal ratings-based approach (IRB).
“Assuming such a transition cuts Affin’s risk-weighted asset density to 54%, we estimate its group and bank CET-1 could rise by over 2 points,” said RHB.
Affin may have to withhold dividend payments for longer to preserve its capital position. For now, RHB retains their forecasts for Affin, pending further clarity on dividends.
“We are not too concerned on Public Bank’s capital position, chiefly due to the abovementioned positive impact from Basel III reforms to credit RWA,” said RHB.
Also, its growth is relatively modest while capital generation remains strong with FY25F ROA at 1.3-1.4%.
While it has guided for a higher 60% payout ratio in 2025 (2024: 57%), its 2025F bank-only CET-1 ratio is estimated to be relatively stable. —Mar 27, 2025
Main image: News Straits Times
