KUALA LUMPUR (March 7): Malaysian banks will likely see moderate profit growth this year, underpinned by steady loan expansion and still-benign loan provisioning expenses.

In a statement on Friday, RAM Rating Services Bhd said Malaysian banks registered a stronger profit performance in 2024, on the back of more robust non-interest income, lighter provisions and sound loan growth, even as the average net interest margin (NIM) was marginally lower.

It said the average pre-tax return on assets of eight selected local banks improved to 1.40% in 2024, from 1.36% in 2023.

The average return on equity rose to 14.0% from 13.6%.

The eight selected banks in RAM Ratings’ round-up are Affin Bank Bhd (KL:AFFIN), Alliance Bank Malaysia Bhd (KL:ABMB), AMMB Holdings Bhd (KL:AMBANK), CIMB Group Holdings Bhd (KL:CIMB), Hong Leong Bank Bhd (KL:HLBANK), Malayan Banking Bhd (KL:MAYBANK), Public Bank Bhd (KL:PBBANK), and RHB Bank Bhd (KL:RHBBANK).

“The eight banks’ NIM on average recorded a mild contraction of two basis points (bps) for the year, falling to 2.06%, although the NIM performance of individual banks varied.

“To safeguard margins, banks have actively managed funding costs by reducing expensive deposits,” it added.

RAM Ratings co-head of financial institution ratings Wong Yin Ching said margins are envisaged to stay largely stable this year, in line with the credit rating agency’s view that the overnight policy rate will remain unchanged.

Meanwhile, domestic loans grew by a healthy 5.5% in 2024 (2023: 5.3%), and household loans led credit growth at 6.0%, outpacing business loans (4.8%), the firm said.

It said the bulk of household lending was driven by residential mortgages (6.9%) and passenger vehicle financing (8.5%), which together accounted for 80% of household loans.

“We project loan growth in 2025 to hold steady at around 5.5%,” it said.

RAM Ratings forecast gross domestic product to expand by 4.0% to 5.0% this year (2024: 5.1%), which will continue to support credit growth.

“Albeit lower, economic growth remains underpinned by domestic demand, given favourable labour market conditions and accommodative interest rates.

“Both public and private investments are also expected to drive growth, amid the ongoing roll-out of multi-year infrastructure projects and increased realisation of approved investments. That said, risks to loan growth have tilted to the downside this year,” it added.

The credit rating agency said subsidy rationalisation and adjustments, coupled with elevated global headwinds and geopolitical tensions, may dampen consumer and business sentiments.

It said the banking system’s gross impaired loan (GIL) ratio had eased to a historical low of 1.44% as at end-December 2024 (end-December 2023: 1.65%).

“Ample reserves set aside over the last few years allowed the average credit cost ratio of the eight banks to continue to improve, coming in at 18bps (2023: 23bps).

“The average GIL coverage ratio (with regulatory reserves) of 143% is still noticeably higher than the pre-pandemic level of 107%,” RAM Ratings said.

It expects banks’ asset quality to stay intact in 2025.

Uploaded by Tham Yek Lee