Kuala lumpur: Malaysia's banking system has maintained a robust total capital ratio of 18.1 percent of total risk-weighted assets as of December 2025, a slight decrease from 18.2 percent in June 2025, according to Bank Negara Malaysia (BNM). The excess capital buffers have increased to RM139.3 billion from RM138.9 billion in the same period, demonstrating the system's solid financial health.
According to BERNAMA News Agency, BNM's Financial Stability Review for the Second Half of 2025 highlighted the role of capital conservation strategies, such as dividend reinvestment programmes, in preserving strong capital buffers. These measures ensure that banks can continue lending activities, an essential factor given the current cost pressures on businesses and households. The strong capital positions also equip banks to endure unexpected economic shocks, as confirmed by BNM's recent stress test exercise.
BNM reported a year-on-year deposit growth of 4.5 percent, up from 3.8 percent in June of the previous year. This growth was largely driven by deposits from resident businesses and individuals, comprising 73.3 percent of total deposits. Non-bank financial institutions (NBFIs) and the government were the next largest contributors to deposit growth, accounting for 9.8 percent and 6.4 percent respectively, as of December 2025.
Fixed deposits, including commodity murabahah, continued to play a crucial role in stabilizing banks' funding structures, representing over half of the total banking system deposits. The central bank also noted that banks maintain substantial holdings of government bonds and sukuk, which can be utilized in the interbank market or with BNM for additional liquidity.
The reduction in the overnight policy rate (OPR) in July 2025 contributed to lower bank funding costs, with the weighted average cost of funds decreasing to 2.54 percent by December 2025. This favorable cost environment positions banks well to facilitate credit intermediation, as funding and liquidity issues are well managed through prudent liquidity practices and diversified funding sources.
BNM observed a slight increase in banks' external debt, which rose to RM299.1 billion in the second half of 2025 from RM297 billion in June 2025. Including the external debt of banks in the Labuan International Business and Financial Centre, the total external debt amounted to RM451.3 billion, primarily due to increased interbank borrowings. However, foreign exchange revaluation gains, driven by the ringgit's appreciation against the US dollar, partially offset this increase.
External funds comprised a modest 7.8 percent of total banking system liabilities and equity, emphasizing limited reliance on external sources for funding. Following the OPR cut, net interest margins (NIM) narrowed, stabilizing at 1.99 percent by December 2025, supported by lower interest expenses on deposits.
Bank profitability continued to benefit from trading and investment income, which reached RM7.6 billion in the second half of 2025. Looking ahead, BNM anticipates that banks' profitability will remain supported by consistent interest income, sound asset quality, credit growth, and positive domestic growth prospects. Nevertheless, uncertainties persist due to the potential impacts of geopolitical conflicts and trade tariffs on Malaysia's economic and financial landscape.