KUALA LUMPUR (March 12): Malaysia's banking system remains stable, backed by strong economic performance and healthy bank fundamentals, according to Moody’s Ratings.

It has an A3 investment grade sovereign rating on Malaysia’s credit.  

Moody’s predicts Malaysia’s real gross domestic product (GDP) growth will be 5% in 2025, following a 5.1% increase in 2024. Despite risks from trade tariffs and geopolitical tensions, Malaysia’s diverse trade partnerships, including with Singapore, should help mitigate these challenges.

Key banking system metrics like asset quality and profitability are expected to stay stable in 2025.

Asset quality will benefit from a strong labour market, though sectors like wholesale trade, retail, and manufacturing still face challenges. Non-performing loan (NPL) ratios are forecast to stay stable at 1.5%-1.8%, supported by favourable labour conditions.

The proportion of loans under repayment assistance remains low at 2% of total banking system loans, and loans under financial stress have decreased from 4.8% in December 2023 to 4.4% in June 2024.

Profitability will remain steady, with net interest margins (NIMs) and credit costs holding stable. Banks are expected to maintain steady non-interest income, driven by higher fees and commissions.

Moody’s said banks are well-capitalised and likely to increase dividend payouts. Liquidity and funding will stay stable, with moderated deposit competition and strong liquidity buffers.

The government’s initiatives, such as the National Energy Transition Roadmap and New Industrial Master Plan, are expected to boost investments, especially in semiconductor manufacturing and data centres, supporting future credit growth.

Malaysian banks have become more reliant on market funds but are expected to maintain strong liquidity buffers, with Cagamas Bhd borrowings providing stable funding.