KUALA LUMPUR (July 15): Malaysia’s loan growth is expected to slow in the second half of 2026 as weaker economic growth and global uncertainties weigh on borrowing demand, according to BMI.

In a note on Wednesday, BMI said banks performed better than expected in the early part of 2026, prompting the firm to raise its full-year loan growth forecast from 4.6% to 5%. However, as economic growth slows, borrowing activity is expected to moderate in the coming months. Banks' loan growth increased from 4.7% in January to 5.7% in May 2026.

BMI, a unit of Fitch Solutions, expects Malaysia’s economic growth to slow from 5.2% in 2025 to 4.3% in 2026. The slowdown could be further affected by the ongoing US-Iran conflict, which may weigh on global growth and trade. BMI lowered its global growth forecast for 2026 to 2.4% from 2.8% previously, warning that weaker growth among Malaysia’s key trading partners could outweigh the resilience of domestic demand.

Among sectors, construction loans are expected to face the greatest pressure. BMI said recent central bank data showed construction loan growth slowing for a second consecutive month, declining from 9.7% in March 2026 to 7.4% in May 2026.

The research firm warned that higher costs from geopolitical tensions, along with uncertainty over changes to US tariffs under Section 122, could prompt businesses and investors to delay capital spending, particularly on capital-intensive projects such as data centres.

BMI said a slowdown in credit growth may not be entirely negative for Malaysia, especially for households, which account for 60% of total loans. Household debt remains high, with credit reaching 69.8% of gross domestic product in the fourth quarter of 2025, while the debt service ratio rose to a four-year high of 15.5%, indicating increased repayment pressures among households.

Despite the expected slowdown in credit growth, BMI said Malaysia’s banking sector remains resilient. The banking system’s capital ratio stood at 18.1% in the first quarter of 2026, well above the regulatory minimum of 10.5%, showing that banks remain well positioned to withstand economic challenges.

It said Malaysia’s banking sector remains stable, with strong capital buffers that provide resilience against economic pressures. Key capital measures also remain above international Basel III requirements, supporting the sector’s ability to absorb potential shocks.