By Karina Imran
KUALA LUMPUR, Dec 7 (Bernama) -- Malaysia’s banking sector ended 2025 on a firmer footing, charting steady loan growth, stable asset quality and sustained profitability despite a year clouded by global trade tensions, while the outlook for next year remains steady amid a diversified portfolio.
One of the most significant developments in the domestic financial landscape this year was the acquisition of Export-Import Bank of Malaysia (Exim Bank) and Small Medium Enterprise Development Bank (SME Bank) by Bank Pembangunan Malaysia Bhd in May 2025.
The acquisition of shares was completed based on the net tangible assets of Exim Bank and SME Bank as of Dec 31, 2023.
Following the completion of the acquisition, the three banks are better positioned to expand and strengthen their existing mandates to bridge the country’s developmental funding gap.
Commendable 3Q Performance Despite Uncertainties
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told Bernama that the sector delivered a commendable performance despite the global economy grappling with uncertainties stemming from the United States (US) tariff shocks and geopolitical concerns.
“Banks’ return on equity rose to 13.3 per cent in the third quarter (3Q), which is higher compared to 12.4 per cent in the same period in 2024.
“Total loan growth in January 2025 was at 5.6 per cent. It hit the trough of 5.1 per cent in June 2025 but gradually improved to 5.5 per cent in September 2025,” he explained.
Mohd Afzanizam said banks have been actively recording respectable sales during the year, with total capital ratio falling slightly from 18.4 per cent in January 2025 to 17.9 per cent in September 2025.
AmBank Group chief economist Firdaos Rosli also shared a similar opinion, adding that the asset quality remains resilient with the gross impaired loan ratio improving to 1.41 per cent as of September 2025, down slightly from 1.43 per cent in the previous month.
“This improvement is supported by favourable labour market conditions, as the unemployment rate remained steady at 3.0 per cent in the same month,” he said.
Loan Growth Driven by Non-Household Segment
Mohd Afzanizam said loan trends in 2025 reflected firmer activity in the non-household segment, particularly among manufacturing-related industries.
He said the non-household sector, which accounted for about 40 per cent of the total loans, has been rising at a faster pace of 5.5 per cent year-on-year (y-o-y) in September 2025 from 5.0 per cent in January 2025.
This was primarily driven by the manufacturing sector, such as food products, electrical machinery and apparatus, electricity and water, as well as construction.
Household loans, which comprised about 60 per cent of total loans, grew at a slower rate of 5.5 per cent y-o-y in September 2025 versus 6.0 per cent in January 2025, driven by slower growth in passenger vehicles, residential property and personal use.
Meanwhile, Firdaos said the strong loan growth performance was primarily driven by the residential, non-residential, and auto segments.
“There have been numerous new car launches throughout the year, contributing to auto loan growth,” he said.
He also attributed the steady Overnight Policy Rate (OPR) to sustainable residential property loan growth.
“A lower and predictable interest rate path buttresses loan growth throughout the year. Malaysia's banking system experienced strong growth at the start of the year, buoyed by both household loans and non-household loans, which continued to rise.
“Within the household segment, we observed that credit cards remained the primary driver. Additionally, the figure has remained around 7.0 per cent to 9.0 per cent to date, suggesting that consumer spending remains strong,” he said.
OPR Cut Helps Maintain Confidence
Bank Negara Malaysia (BNM) reduced the OPR from 3.0 per cent to 2.75 per cent this year.
“While we saw the OPR rest lower this year compared to 2024, following one rate cut in July, this would lead to a stable net interest margin (NIM) as the bank can anticipate the future rate path and adjust accordingly to follow the central bank's decision.
“Hence, this could reduce the risk of a negative impact on earnings. Moreover, this could also stimulate consumer confidence, as reflected in loan growth for credit card purchases, given that borrowing costs are more affordable,” said Firdaos.
Mohd Afzanizam said downward adjustment on OPR will have a material impact on banks’ earnings as its NIM for the conventional banks or net income margin (NIM) for the Islamic banks, as the interest rate on conventional loans or profit rate for Islamic financing assets will be lowered immediately, especially those financing contracts with variable rates.
“However, the deposit rate, especially the fixed deposit rate, will only be adjusted lower when the contract matures. Hence, in the interim, NIM will be compressed when OPR is reduced.
“Thus far, the economic growth has been quite stable and is likely to grow within the forecast range,” he said.
At the same time, Mohd Afzanizam said, the inflation rate is also at a moderate pace.
“Hence, there seems to be no urgency for BNM to cut the OPR in the immediate term. However, we believe the central bank will continue to remain vigilant, especially on the impact of the US tariff, which will be felt on a full scale in 2026.
“Basically, while the OPR might stay in 2026, the possibility that it might be reduced cannot be totally ruled out. On that note, banks will be vigilant on the risk of lower OPR next year,” he said.
Trade Tension Expected to Influence Outlook
Firdaos said that although US tariffs have risen considerably since April 2025 due to the US reciprocal tariff imposition, trade bills peaked in June 2025 and are now moderating.
However, from a growth perspective, it peaked at 14.4 per cent in July 2024 and has been trending lower since, not only due to the US tariffs but, more importantly, the high base effect.
“The US administration has granted numerous exemptions from reciprocal tariffs, with the latest one announced on Nov 14, 2025.
“As US inflation remains elevated, we can expect more exemptions in the future. Investor confidence will likely be cautious, but it may not be as dire as initially feared,” he said.
Firdaos stressed that while the reciprocal tariffs may indirectly impact Malaysian banks through lower trade bills, the systemic risk or indicator from credit slowdown and rising non-performing loans in exposed sectors remains low amid diversified portfolios.
-- BERNAMA
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