PETALING JAYA: Malaysia’s well-capitalised banking sector is expected to continue supporting orderly domestic market functioning and resilience, says Bank Negara Malaysia (BNM).
In its Financial Stability Review for the second half of 2025 (2H25), BNM said banks remained well-positioned to support financial intermediation, underpinned by healthy liquidity and funding positions.
It revealed that the aggregate liquidity coverage ratio and net stable funding ratio were well above regulatory requirements at 154.8% and 115.7% respectively as at end-December 2025.
Additionally, banking system deposits grew by 4.5% year-on-year, mainly driven by sustained growth in deposits from resident businesses and individuals, which accounted for 73.3% of total deposits.
“Fixed deposits continued to underpin the stability of banks’ funding structure, accounting for over half of total banking system deposits,” BNM said.
“Funding and liquidity risks remain well-contained, supported by prudent liquidity management and diversified funding sources.”
Meanwhile, asset quality in the banking system remained sound, with a low, stable gross impaired loans ratio of 1.4% and the share of Stage 2 loans to total banking system loans decreased to 6.1%.
Even as repayments remained stable, banks continued practising prudent provisioning, BNM said.
It noted that the banking system loan loss coverage ratio, including regulatory reserves, stayed high at 127.2%.
Banks also continued to generate healthy earnings, supported by sustained interest income.
Net interest margins, after easing through September 2025 following the overnight policy rate cut in July 2025, stabilised at 1.99% as at December 2025 as maturing fixed deposits rolled over at lower prevailing interest rates.
Trading and investment income amounted to RM7.6bil in 2H25, further contributing to profitability.
Moreover, returns on assets and equity of the banking system remained stable at 1.5% and 13.1% respectively.
BNM said market valuations of listed banks, as measured by price-to-book and price-to-earnings ratios, remained broadly anchored to fundamentals.
In addition, the banking system’s total capital ratio remained robust at 18.1% of total risk-weighted assets, along with excess capital buffers amounting to RM139.3bil.
“Capital conservation strategies, including dividend reinvestment programmes, continued to support the maintenance of strong capital buffers,” the central bank said.
While external debt saw a modest increase to RM299.1bil, this was partly offset by foreign-exchange revaluation gains following the appreciation of the ringgit over the period.
“Funding and liquidity risks associated with banks’ external debt remain contained,” BNM said.
Funds sourced from external counterparties accounted for only 7.8% of total banking system liabilities and equity, indicating limited reliance on external sources for funding support, it noted.
