MALAYSIA’S financial system remained stable and resilient in the first half of the year, despite ongoing global uncertainties and heightened market volatility, according to Bank Negara Malaysia’s (BNM) Financial Stability Review – First Half 2025, released today.
The central bank noted that household and business sectors continue to demonstrate strong debt-servicing capacity, supported by prudent lending practices and favourable labour market conditions.
“Households continued to demonstrate healthy debt-repayment capacity, supported by sound lending standards and favourable labour market conditions,” BNM stated in its review. The household debt-to-GDP ratio edged slightly higher to 84.8 per cent, though key indicators such as the median debt service ratio (DSR) remained sound at 41 per cent for new loans and 33 per cent for existing ones.
The quality of household borrowing also remained strong, with the loan impairment ratio unchanged at 1.1 per cent.
For businesses, BNM said their ability to service debt remained intact, underpinned by proactive cost management and stable financial conditions. The median interest coverage ratio stood at 6.2 times, while the share of firms deemed “at-risk” remained stable at 24.4 per cent.
Malaysia’s financial markets continued to operate in an orderly fashion, despite external pressures such as ongoing geopolitical tensions and concerns over global growth. The ringgit appreciated by 6.1 per cent against the US dollar between March and September 2025, driven by favourable external developments.
The banking sector remained well-capitalised with a total capital ratio of 18.2 per cent and excess capital buffers of RM138.9 billion as of end-June. Credit quality remained stable, with the gross impaired loans ratio holding at 1.4 per cent, while the proportion of Stage 2 loans – those with increased credit risk – stood unchanged at 6.6 per cent.
Liquidity positions in the banking sector also remained robust, with a Liquidity Coverage Ratio (LCR) of 160.5 per cent and a Net Stable Funding Ratio (NSFR) of 115.7 per cent.
The insurance and takaful sector, too, continued to demonstrate resilience, maintaining an aggregate capital adequacy ratio of 223 per cent and RM42 billion in excess capital buffers.
“Insurers and takaful operators (ITOs) remained well-positioned to manage risks related to financial market volatility, rising motor and medical claims costs, and more frequent climate-related events,” said BNM.
On the growing use of Buy Now Pay Later (BNPL) schemes, the central bank observed that while BNPL exposure is expanding rapidly, its share of total household debt remains minimal at 0.2 per cent.
Meanwhile, SME loans under repayment assistance programmes declined further, comprising 4.1 per cent of total SME loans and just 0.7 per cent of total loans across the banking and development financial institution sectors.
Overall, BNM concluded that the Malaysian financial system remains fundamentally strong, supported by healthy buffers, risk management practices, and continued economic recovery. - October 16, 2025
