TA Research reiterated its “overweight” stance on the banking sector.
PETALING JAYA: The banking sector’s loan momentum is expected to pick up in the second half of 2025 across the consumer and business segments.
TA Research said consumer loans, which account for around 58% of total system loans, should see a lift from improved household sentiment, supported by a resilient labour market, an accommodative interest rate backdrop and recent fiscal support measures.
These include increased cash assistance allocations, the reduction in RON95 petrol price following the implementation of a targeted fuel subsidy plan and a freeze on toll hikes at 10 highways.
Meanwhile, business and small and medium enterprise or SME loan growth is expected to gradually accelerate, underpinned by improved policy visibility following the recent reduction in the US tariff on Malaysian products from 25% to 19%.
As of June 2025, loan growth of the consumer and business segments trailed behind TA Research’s full-year forecast of 6.3% for consumer loans and 4.9% for business loans.
“But we are keeping our projections unchanged for now. As such, we maintain our forecast for total loan growth to come in at 5.7% in 2025.”
In June 2025, the banking sector’s total loans and advances expanded at a more moderate pace of 5.1% year-on-year (y-o-y) and 0.7% month-on-month (m-o-m).
By segment, consumer loans rose 5.8% y-o-y and 0.5% m-o-m. Y-o-y growth continues to be anchored by residential mortgages, which make up 65% of total consumer loans, though the pace has also eased.
Meanwhile, June’s business loans grew 4.2% y-o-y and 0.9% m-o-m. The month’s y-o-y growth moderated slightly from 4.6% in May.
By sector, loan contractions persisted in several segments led by education, health and others (12.9%), followed by agriculture, forestry and fishing (6.5%), mining and quarrying (4.4%), and construction (8.7%).
Year-to-date, overall sector loans grew by 2.1%, supported by a 2.5% increase in consumer loans and a 1.6% rise in business loans.
In terms of loan applications, the rise was modest by 1.2% y-o-y in June, although applications contracted sharply by 18.4% m-o-m.
The y-o-y improvement was largely driven by business loan applications, which expanded 2.9% y-o-y (25.9% m-o-m fall), helping offset a marginal 0.1% y-o-y decline in consumer loan applications (11.2% m-o-m decline).
By sub-segment, applications for residential property loans and credit cards slipped 1.4% and 0.3% y-o-y, respectively.
In contrast, there were modest gains in hire purchase loans (2.9% y-o-y), loans for the purchase of securities (10.5% y-o-y) and personal financing (0.5% y-o-y), although all posted m-o-m declines.
As for loan approvals, a contraction was seen in June by 0.7% y-o-y and 18.7% m-o-m, mainly due to a 9.5% y-o-y drop in consumer loan approvals (13.7% m-o-m fall).
Business loan approvals, however, grew 8.7% y-o-y, although they also declined on a m-o-m basis by 22.5%.
The overall loan approval rate stood at 54%, supported by a 64% approval rate for business loans and 45% for consumer loans.
Impaired loans declined by 6.2% y-o-y in June, with consumer and business impaired loans down 2.9% y-o-y and 8.7% y-o-y, respectively.
Overall asset quality remains stable, as the net impaired loans ratio stood at 1.4%, an improvement from 1.6% a year ago.
Deposit growth also accelerated in June, with total deposits (ex-repo) rising 3.8% y-o-y and 0.6% m-o-m.
Looking ahead, TA Research reiterated its “overweight” stance on the banking sector.
The positive outlook is underpinned by the sector’s resilience in asset quality, capacity to support credit flows and decent earnings visibility.
