KUALA LUMPUR (April 2): Loan growth at Malaysian banks is expected to pick up in the coming months following a moderation in February.

Banks appeared optimistic about their balance sheet growth in 2025 as the economy is expected to expand steadily on the back of robust domestic demand for household spending and business investments, analysts said.

“Loan growth prospects remain strong” thanks to a combination of major infrastructure projects, the Johor-Singapore Special Economic Zone and renewable energy investment,” MIDF Amanah Investment Bank said.

Year-on-year, the Malaysian banking system’s loan growth slowed to 5.2% year-on-year in February 2025, its weakest pace since November 2024, due to lower business lending amid festive seasons.

Meanwhile, household loan growth held firm at 6%, led by residential mortgages and auto financing, Bank Negara Malaysia data showed.

While staying positive on the banking sector outlook, Kenanga Investment Bank cautioned that loan growth readings in the coming months may be distorted by festive seasonality and unfavourable trade policies.

“That said, we believe the banking sector is poised to show resilience on the back of a supportive Malaysian economy, where most banks also guided for stronger loan growth in 2025,” Kenanga said.

Mortgage and hire purchase would remain supportive in the household segments while business loans are picking up on higher working capital for upcoming data centre and Johor-based developments, the house added.

On valuations, Malaysia’s banking stocks are currently trading at about 1.10 times forward book multiple, near its 10-year average of 1.14 times. “We believe the recent share price retracement presents an opportunity to accumulate quality banks on weakness,” Phillip Capital said.

Banks’ dividend yields of 5% also continue to appeal to income-seeking investors, according to research houses including CGS International, RHB Investment Bank and Hong Leong Investment Bank.

Banking stocks are considered proxies to economic growth and Malaysia is expected to expand steadily between 4.5% and 5.5% for 2025 even as external headwinds intensify with the international trade tensions.

Overall, “banking remains a solid safe haven pick; ROE (return on equity) and upside earnings prospects are less exciting than 2024’s — but stability is intact”, MIDF added.