KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Key Takeaways:
Loan growth projected to ease to 4%-5% over the next two years vs. 5.5% in 2024.
Non-performing loans (NPLs) may rise 20-25 bps to 1.6% by end-2026, mainly from SMEs and low-income households.
Strong household and corporate balance sheets should cushion downside risks, but intense competition in mortgages and deposits will pressure profitability.
Slower Loan Growth Outlook
Malaysia’s banking sector is facing headwinds from slowing economic growth and weaker corporate loan demand, according to a new report by S&P Global Ratings. The agency flagged that external risks, including higher tariffs and supply chain disruptions, could weigh heavily on smaller businesses.
S&P estimates that loan growth will slow to 4%-5% annually over 2025–2026, down from 5.5% in 2024, as corporates delay capital expenditure plans amid external uncertainties.
Rising Credit Risks
S&P cautioned that non-performing loans could rise by 20–25 basis points, reaching 1.6% by end-2026. The increase is expected to come primarily from small and medium enterprises (SMEs) and low-income households, both of which are more vulnerable to external shocks.
Despite this, S&P noted that Malaysian banks enter this period from a position of strength, with robust capitalization and asset quality to absorb modest credit deterioration.
Policy Support and Household Resilience
Recent central bank actions have cushioned the slowdown. Bank Negara Malaysia (BNM) cut the policy rate in July and slashed the statutory reserve requirement to a 14-year low in June to preserve growth momentum.
The household sector, which accounts for 60% of banks’ loan books, is expected to remain resilient. Household financial assets are more than double total household debt, while regulatory measures continue to curb over-leverage.
Profitability Under Pressure
Competition in Malaysia’s crowded banking market, home to around three dozen lenders, will remain intense. Mortgage finance — which forms 40% of sector loan books — is particularly competitive, leading to margin compression.
On the funding side, banks are steering away from costly wholesale deposits, shifting toward interbank borrowings and long-term debt issuance in wholesale markets, which offer cheaper funding. S&P expects deposit growth to trail loan growth as banks prioritize retail deposits and alternative funding sources.
Bottom Line
While Malaysia’s banking system remains fundamentally strong, slower loan growth, rising credit costs, and intense competition point to a tougher operating environment. Strong household balance sheets and proactive central bank measures should mitigate systemic risks, but profitability headwinds are unlikely to ease in the near term.
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