Credit Quality Of Business Loans Has Improved, Says BNM

KUALA LUMPUR, March 31 (Bernama) -- The overall credit quality of business borrowings improved in the second half (2H) of 2025 with no notable divergence in trends across segments and sectors as shares of impaired loans and loans with increased credit risk for overall businesses improved to 2.8 per cent and 10.7 per cent, respectively.

Within the small and medium enterprise (SME) segment, a small segment of borrowers, especially micro and small firms in the wholesale and retail trade, agriculture, construction, and food and beverage sectors, continued to exhibit signs of repayment stress, Bank Negara Malaysia (BNM) said.

According to the central bank, these firms typically face longstanding business challenges, including tightening cash flows and compressed profit margins due to delayed client payments, heightened competition and elevated operational costs.

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“Despite these challenges, the majority of SME borrowers generally continued to adapt to prevailing business conditions and remained able to service their financial obligations,” BNM said in its Financial Stability Review for 2H 2025 released here today.

During the period, the share of delinquent SME loans increased marginally to 1.5 per cent, while impaired SME loans was broadly steady at 3.5 per cent.

The share of SME borrowings under repayment assistance from banks and the Credit Counselling and Debt Management Agency (AKPK) edged down to 3.8 per cent of total SME loans, or 0.6 per cent of total banking system and development financial institution (DFI) loans, with no notable shifts in the profile of SME borrowers seeking assistance, BNM explained.

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Meanwhile, financing conditions remained supportive of business needs, with credit to businesses growing at an annual rate of 5.1 per cent as at December 2025, while businesses, particularly larger corporates, continued to utilise a diverse range of funding sources, including financing from the domestic corporate bond market and external borrowings.

In the domestic corporate bond market, the central bank said, credit quality of issuances remained strong, with no issuance downgraded in 2H 2025.

Moving forward, BNM said the business sector outlook is expected to be anchored by resilient domestic demand and investment activities, sustained external demand for the electrical and electronics (E&E) goods, as well as steady tourism activity following the Visit Malaysia 2026 campaign, despite some travel disruptions from the ongoing geopolitical conflict in West Asia.

BNM stressed that downside risks to business resilience stem mainly from a weaker global growth outlook that could weigh on external demand, potential intensification of trade and supply chain challenges amid ongoing geopolitical tensions and trade tariffs, and more moderate domestic demand conditions.

However, stress tests conducted by the central bank affirm that banks maintain sufficient capital buffers to withstand potential increases in credit losses from the business sector under adverse stress scenarios, it added. 

-- BERNAMA