TA Research said it continues to expect loan momentum to pick up slightly in the second half of financial year 2025.
PETALING JAYA: Analysts have reiterated their “overweight” rating on the banking sector on expectations of write-backs in management overlay and rising dividend payout ratios.
CGS International (CGSI) Research said the Malaysian banking industry sustained its loan growth momentum at 5.4% year-on-year (y-o-y) at end-July and end-August, in line with its projected rate of between 4.5% and 5.5% for 2025.
“Assuming that banks sustained their month-on-month loan growth of 0.3% to 0.4% in September (on par with the rates in July to August), the banking industry’s total loan likely expanded by between 5.3% and 5.4% y-o-y in September (versus 5.4% in August).
By segment, y-o-y growth was likely circa 5.6% to 5.7% y-o-y for household loans and circa 5% for business loans, based on our estimates, the research house said.
It also said there have been concerns in the market that higher US tariffs would negatively impact the businesses of Malaysian companies exporting to the US market, potentially leading to defaults in loans extended to some of these companies.
However, the Malaysian banking industry’s asset quality remained intact as its gross impaired loan ratio inched down in the first eight months of 2025 from 1.44% at end-December 2024 to 1.43% at end-August, said CGSI Research.
TA Research said looking ahead, it continues to expect loan momentum to pick up slightly in the second half of financial year 2025.
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 fiscal support measures, according to the research house.
“Meanwhile, business as well as small and medium enterprise loan growth is expected to gradually accelerate, underpinned by improved visibility in the tariff policies.
“As such, we maintain our forecast for total loan growth to come in at 5.7% in 2025,” TA Research said.
It noted in terms of deposit growth, this accelerated, with total deposits rising 4.8% y-o-y in August 2025.
Current account savings account (Casa) balances rose 6.3% y-o-y, bringing the Casa ratio marginally higher to 31.4%, up from 31% a year ago, it said.
Furthermore, TA Research also said system liquidity remained ample, with the liquidity coverage ratio steady at 147% (August 2024: 146%), while the loan-to-fund ratio slipped slightly to 83.1% from 83.6%.
“Average lending rates eased to 4.71% in August 2025, down from 4.84% in July and 5.26% a year earlier, reflecting the overnight policy rate cut in July along with a competitive lending environment.”
