RAM Ratings Maintains Stable Outlook On Malaysian Banking Sector For 2025

KUALA LUMPUR, March 21 (Bernama) -- RAM Rating Services Bhd (RAM Ratings) has maintained a stable outlook on the Malaysian banking sector in 2025 despite external pressure.

It noted that while uncertainties from US protectionist measures and ongoing geopolitical tensions could spill over into the domestic economy, it is still too early to assess the full extent of these effects.

With the US and China being Malaysia’s key trading partners, 14 per cent of the country’s total value-added production, the retaliatory tariff contest may dampen positive trade momentum and Malaysia’s growth trajectory. 

bootstrap slideshow

“Despite these external challenges, we anticipate that banks’ credit profiles will remain steady, underpinned by strong fundamentals; asset quality is at its most robust ever with capital buffers still solid,” it said in a statement.

RAM Ratings expects loan growth to hold steady at 5.5 per cent in 2025. Household loans may ease slightly but will likely be the main driver of loan growth, while business loans increase from infrastructure projects and investments.

Although still robust, the industry’s common equity tier 1 capital ratio declined to 14.3 per cent at end-2024 (2020-2023 average: 15.3 per cent; end-2019: 14.6 per cent).

bootstrap slideshow

“Banks are cautiously raising dividends, with most estimating the impact of new Basel III reforms to be manageable,” it said.

RAM’s 2025 gross domestic product (GDP) expectation of between 4.0 per cent and 5.0 per cent, although slower, will be driven by domestic demand given favourable labour market conditions and accommodative interest rates.

It said investment activities will gain from progress on multiyear infrastructure projects and greater realisation of record-high levels of approved investments last year, as well as the ongoing rollout of catalytic initiatives under the national master plans.

These factors are likely to stimulate business lending.

On the retail front, home financing will continue to be a major growth contributor while auto lending is anticipated to normalise in line with 2025’s lower total industry volume forecast.

“Beyond these, the overall loan growth trajectory will also inevitably depend on how global external risks and domestic adjustments to fuel subsidies and electricity tariffs unfold,” it said.

On the asset quality front, the weighted average credit cost ratio of eight selected local banks rated by RAM eased to 18 basis points (bps) in 2024 (2023: 23 bps).

Banks’ loan loss coverage (with regulatory reserves) is strong, with the average of the eight banks improving to 143 per cent as of end-2024 (end-2023: 134 per cent).

Furthermore, RAM Ratings said Malaysian digital banks are making a nascent mark in the industry; all three operational banks ramped up deposit-gathering efforts over the past year, driven by high-interest savings accounts.

Digital banks also recently expanded their services to include lending, strategically focusing on specific customer segments.

Expectedly, all three digital banks are still far from breaking even. Quarterly trends indicate that losses have yet to peak due to high set-up costs.

“The key hurdle for these banks lies in retaining tech-savvy and price-sensitive customers in a competitive market while managing acquisition costs and scaling up without assuming significant risks.

“Shareholders have so far demonstrated strong financial support, with all three players receiving additional capital injections in 2024,” it added.

-- BERNAMA