Fitch Sees Stable Outlook For Malaysia's Top Banks Despite External Risks
The rating agency cited Malaysia's diversified economy, adequate loan-loss buffers, and consistent underwriting standards as key factors supporting the sector's resilience and keeping impairment risks manageable.
Household loans, which account for nearly 60% of total system lending, are expected to stay resilient, supported by steady employment conditions and sustained debt-servicing capacity, despite high but stable leverage levels.
Fitch noted that the small and medium-sized enterprise (SME) segment — a growth driver for many banks — may be more vulnerable to softer economic conditions in a higher trade tariff environment. However, it does not foresee a significant rise in impairment rates that would undermine overall bank performance.
The agency also expects moderate pressure on asset yields following Bank Negara Malaysia's recent policy rate cut aimed at cushioning the economy from external headwinds. Credit costs could rise as banks rebuild loan-loss reserves, but these pressures should be offset by higher market-related income amid sustained financial market volatility, as well as the 100-basis-point cut in the statutory reserve requirement in May 2025.
Additionally, the growing share of higher-yield SME loans should help support margins. 'We expect risk-adjusted returns for Malaysian banks to remain broadly steady over the next year,' Fitch said.
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