KUALA LUMPUR (May 4): Malaysia’s banking sector is expected to face rising headwinds in the coming quarters as global energy shocks linked to the ongoing Middle East conflict begin to filter through the economy, analysts said.
While the sector’s performance in terms of loan growth and asset quality during the first quarter of 2026 remain largely unaffected, the outlook beyond that is looking "precarious", according to MBSB Research.
The full impact of the external shock remains unclear, as even banks are also not sure of the second-and-third order impact of the cost pressure, it added.
“The ongoing Middle East war’s cost pressure may have graduated from primarily affecting businesses to hurting mass-market consumers,”MBSB said in a note on Monday. Even the government has also already begun to cut spending, and it expects pressure on both retail and business loans.
The concern is that sustained high energy prices could dampen both corporate investment and household spending, which together form the backbone of Malaysia’s domestic demand. Private consumption accounts for about 60% of the country’s gross domestic product, making the banking system particularly sensitive to shifts in consumer sentiment and borrowing capacity.
Kenanga Research also flagged its cautions on the sector heading in the second half of 2026 as there are potential vulnerabilities in unsecured lending segments such as personal financing, credit cards and small and medium enterprises (SMEs). This may prompt banks to tilt towards lower-risk, asset-backed lending like mortgages and hire purchase to preserve asset quality, Kenanga opined.
“There could be a potential delay in the booking of provisions amid inflationary concerns from prolonged pressures on the global oil supply chain,” the house said, adding that it prefers to remain selective and favour banks with stronger resilience to inflationary pressures. It named CIMB Group Holdings Bhd (KL:CIMB) and Public Bank Bhd (KL:PBBANK) as its top picks.
The cautious outlook also comes despite recent data from Bank Negara Malaysia showing that loan growth remained steady in March. Loans to the private non-financial sector grew 5.6% year-on-year, unchanged from February, supported by stronger loan growth of 5.6% compared with 5.1% previously. However, growth in the corporate bond market moderated, with outstanding bonds expanding 5.8% versus 7.4% earlier.
“We think the high loan growth in the first quarter of 2026 would not be sustainable, at least in the next two to three quarters, as we believe an environment of high oil prices would result in more cautious investments by businesses and commitments for purchase of big-ticket items by consumers,” according to CGS International.
The research house maintained its 2026 loan growth forecast at 4.5% to 5.5%.
Analysts pointed out that based on the first quarter, Malaysia’s banking sector remains fundamentally resilient on the back of strong capital buffers, sound asset quality and relatively stable macroeconomic conditions compared with regional peers.
The sector also continues to offer attractive dividend yields of around 5%, which position the banks as a defensive haven for investors, Kenanga said.
The banks are also seen as beneficiaries of potential capital inflows into emerging markets, supported by the country’s relatively stable political environment, well-regulated financial system and consistent economic growth, which has averaged around 4% to 5% in recent years, MBSB added.
“We think the possibility of special dividends and other forms of capital release remains very high, though there may be a delay in announcements,” the house said.