KUALA LUMPUR: Malaysia’s banking sector is projected to continue recording higher profits in 2025, supported by steady loan growth, a stable interest rate environment, and non-interest income, said an economist. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid anticipates total loans to grow around 5.5 per cent in 2025, supported primarily by households and non-household segments.

According to BERNAMA News Agency, full employment is expected to continue into 2025, which suggests that household debt repayment capacity would remain fairly intact. Meanwhile, expansionary fiscal policies, higher government development expenditure, and improving external sector would translate into further demand for business financing. Mohd Afzanizam also highlighted that the anticipation of interest rate cuts by the United States Federal Reserve (US Fed) will influence the bond yield trend. He noted that there is a high tendency that US Treasury bond yields will be lower next year.

Given that local bon
d yields are highly influenced by US Treasury bonds, banks are expected to record mark-to-market gains in their fixed income assets, as lower bond yields would mean higher bond prices. This would help to improve banks’ non-interest income, with banks continuing to prioritize asset quality as highly regulated entities. Consequently, credit underwriting standards among banks are expected to remain high.

Mohd Afzanizam pointed out that concerns over external events, especially President-elect Donald Trump’s policies on international trade, will be closely monitored for potential impacts on the banking sector. He also mentioned that the fuel subsidy rationalisation for RON95 in mid-2025 will be a key risk factor, particularly its impact on the general price level and subsequent effect on the debt repayment trend.

On the overnight policy rate (OPR), most economists expect Bank Negara Malaysia (BNM) to hold it steady at 3.0 per cent throughout 2025, as the central bank continues to exercise vigilant assessment of
inflation. This stability is projected to be positive for banks, as the impact on net interest margin (NIM) will be neutral to positive. However, the intense competition in the deposit market could pose a serious challenge to the cost of funds and ultimately NIM. Additionally, competition from digital banks is anticipated to become more apparent as customers become more accustomed to their product offerings.