Malaysia’s Banking Loan Growth Likely at 6% in 2025

Malaysia’s banking loan growth is projected at 6% in 2025, amidst uncertainties in foreign trade policies under the US President-elect Donald Trump’s new administration, said Kenanga Investment Bank (IB).

The bank said that the expectation is a close to its 5.5% to 6% target for 2024 on a loan to GDP multiplier of 1.2 times (10-year average). Currently the bank is eyeing a slower landing of 4.8% GDP in 2025 from shortfalls in construction phase led by the delays in Mass Rapid Transit 3 (MRT) project, Kenanga IB said.

However, positive turns hinge on the clarity on Johor-Singapore special economic zone to bolster domestic industries and foreign direct investments that are also spilling over to the residential developments in the zone.

Net Interest Margins

The Net Interest Margins (NIMs) for the domestic banks are expected to see a long overdue recovery on the backdrop of a steady state 3% Overnight Policy Rate (OPR) and stabilising deposits competition.

“We opine that Bank Negara Malaysia (BNM), the country’s federal bank, will continue to keep the monetary policy independent of US Fed trends as we juggle with a wide 2025 inflation target of 2.0%−3.5%. Further, discretionary consumer spending may be affected depending on the magnitude of the upcoming fuel subsidy rationalization,” the investment bank said.

With this in mind, Kenanga IB has narrowed its Q1-2025 top picks to banks that it believes have an edge with regards to earnings quality. They are AMBANK for its optimisation efforts, and emphasis on earnings sustainability to lift ROE, with higher dividend yield prospects being a bonus (6%); and MAYBANK, which continues to take market share among the big caps and is poised to lead in terms of earnings growth and dividend yield.

Inflation Likely up

Meanwhile, the Hong Leong Investment Bank (HLIB) Research, in a report, said that the inflation in Malaysia is expected to gain momentum in 2025 due to domestic policy changes.

“These include the subsidy reform, expanded sales and service tax scope, and expected increase in electricity tariffs, along with sustained domestic growth and the US Federal Reserve’s recent hawkish signals, we think the central bank will stand pat and keep the OPR unchanged at 3% throughout the year,” HLIB said and highlighted that the latest monetary indicators in November 2024 were mixed.

Narrow money supply (M1) rose at 4.9% y-o-y, while broad money supply (M3) moderated to 4% y-o-y. Total leading loan indicators continued to improve, following a jump in loan applications and a rebound in loan approvals, the brokerage firm added.

However, loan disbursements declined further by 5.7% y-o-y in November last year, from a 4.4% y-o-y drop in October, HLIB added.