MALAYSIAN banks are set to achieve moderate profit growth in 2025, supported by stable loan expansion and robust loan provisioning, according to RAM Rating Services Bhd.
In its latest statement, the agency highlighted that the banking sector experienced stronger profitability in 2024, driven by solid non-interest income, lower provisioning costs, and steady loan growth, despite a slight contraction in net interest margins (NIM).
The average return on assets (ROA) for eight major Malaysian banks increased to 1.40% in 2024, compared to 1.36% in the previous year, while their return on equity (ROE) rose to 14.0%, up from 13.6% in 2023.
The banks under review include Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd, Public Bank Bhd, and RHB Bank Bhd.
"On average, these eight banks saw a modest dip of two basis points in NIM, bringing it down to 2.06%. However, individual bank performances varied," RAM Ratings explained.
"To safeguard their margins, these banks have actively managed their funding costs, particularly by reducing reliance on expensive deposits."
Wong Yin Ching, Co-Head of Financial Institution Ratings at RAM Ratings, noted that NIMs are expected to remain stable in 2025.
This is consistent with the agency’s view that the Overnight Policy Rate (OPR) will likely remain unchanged, providing a stable environment for banking operations.
In terms of lending, domestic loan growth reached 5.5% in 2024, a slight increase from 5.3% in 2023.
Household loans, in particular, led the way with a 6.0% increase, outpacing business loan growth, which stood at 4.8%.
The surge in household loans was primarily driven by a 6.9% growth in residential mortgages and an 8.5% increase in passenger vehicle financing, which together accounted for 80% of household loans.
"We anticipate loan growth to remain stable in 2025, at approximately 5.5%," RAM Ratings added.
Looking forward, the agency projects Malaysia's GDP to expand by 4.0% to 5.0% in 2025, down from 5.1% in 2024.
Despite this slight slowdown, the agency believes that the economy will remain supported by strong domestic demand, a positive labor market, and favorable interest rates.
Additionally, public and private sector investments are expected to boost growth, especially due to ongoing infrastructure projects and the increased realization of approved investments.
"Although growth is expected to slow, domestic demand will continue to underpin economic expansion, bolstered by favorable labor market conditions and accommodative interest rates," RAM Ratings said.
"Investments, both public and private, will also play a key role in driving growth, supported by continued infrastructure projects and the realization of approved investments."
However, the agency also warned that global uncertainties, including geopolitical tensions and the rationalization of subsidies, could dampen consumer and business sentiment.
On a positive note, the gross impaired loan (GIL) ratio in Malaysia’s banking system fell to a record low of 1.44% at the end of December 2024, compared to 1.65% in December 2023.
"With ample reserves built up in recent years, the average credit cost ratio for the eight banks improved to 18 basis points in 2024, down from 23 basis points in 2023," RAM Ratings reported.
"The average GIL coverage ratio, including regulatory reserves, stands at 143%, significantly higher than the pre-pandemic level of 107%."
Looking ahead, RAM Ratings expects the quality of bank assets to remain strong in 2025, despite potential external challenges. - March 7, 2025
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