KUALA LUMPUR (April 30): A support package worth RM5 billion for small and medium enterprises (SMEs) comes at a good time for Malaysian banks that may see a rise in loans turning sour, S&P Global Ratings said.
The low-cost financing facility announced by Bank Negara Malaysia will prevent a spike in nonperforming loans among banks' core borrowers, the ratings agency said in a report that comes as the geopolitical conflict in the Middle East enters its third month.
“While banks are sound, after low credit losses in 2025, this package will reinforce asset quality,” S&P Global said.
Eligible SMEs, including micro enterprises, can access financing of up to RM750,000 for a five-year tenure at a maximum annual interest rate of 3.75%. The financing will be supported by guarantees of up to 80% for firms without sufficient collateral.
SMEs are the backbone of the Malaysian economy, contributing more than one-third to the gross domestic product. However, they are sensitive to deterioration in economic conditions as they have thinner financial buffers and higher costs could eat into their margins, affecting debt-servicing.
If the conflict is prolonged, certain pockets could see higher stress, notably in the agriculture, transportation and storage sectors, S&P Global flagged. The share of SME financing in total bank financing was about 18.5% as of end-2025, data from the ratings agency showed.
“We expect fund utilization to rise if the war continues or if there are major changes to the fuel subsidy structure,” the agency said. “Given the SME sector's importance, we also anticipate further assistance.”
With corporate and household sector balance sheets still strong, bank’s non-performing loans could see a “modest” rise of 10-to-20 basis points by end-2027 to 1.6%, from a multi-year low of 1.4% as of end-2025, according to S&P Global’s forecast.
“We anticipate banks will set aside higher macroeconomic overlays for the rest of 2026 due to heightened geopolitical risks,” the agency added.