PETALING JAYA: The impact of the Middle East conflict on Malaysia’s financial stability has remained manageable despite higher input and logistics costs, supply disruptions and heightened volatility in global financial markets, according to Bank Negara Malaysia (BNM).
The central bank said the local financial system had limited direct exposure to the Middle East, with the main risks instead flowing through the real economy and global financial markets.
It said businesses and households had faced higher costs and weaker purchasing power, while heightened uncertainty and risk-off sentiment could affect investment, consumption, asset valuations, bond yields, exchange rates and market liquidity.
“Shocks arising from the conflict do not occur in isolation, but alongside other global economic and financial developments. “Their implications for domestic financial stability depend on how these combined shocks interact with existing vulnerabilities. “Evidence so far indicates that the risk of such interactions amplifying financial stress has remained limited, with the financial system absorbing the shocks with a high degree of resilience,” BNM said in a feature article titled “Beyond Oil Prices: From Geopolitical Conflict to Financial Stability Risk”.
It said business conditions remained broadly stable, supported by sustained domestic demand, robust electrical and electronics exports and continued investment activities.
“Nonetheless, engagements with businesses indicate that some firms are contending with higher input and logistics costs, delayed payments and longer cash conversion cycles.
“These challenges are more prevalent among small and medium- enterprises (SME), which tend to have thinner margins, smaller liquidity buffers and less scope than larger firms to diversify suppliers or absorb cost increases.”
The central bank said the effects have been particularly visible in wholesale and retail trade, construction, and selected manufacturing segments.
“Some firms in these sectors have experienced declining cash buffers and increased reliance on short-term and working-capital financing. In primary manufacturing, higher prices for inputs such as fertilizer and petrochemical-related commodities have added to cost pressures. Most firms have nevertheless continued to secure essential supplies, albeit at higher prices.”
BNM said businesses had responded by improving cost efficiency, diversifying suppliers, adjusting production and inventory plans and strengthening cash-flow management. These measures had so far helped contain the impact on firms’ financial positions and preserve their ability to service their debt obligations.
It noted that the overall quality of business borrowings remained sound, with the business loan impairment ratio at 2.8% as at June 2026, while the share of loans classified as having increased credit risk remained below its near-term average.
However, repayment pressures had emerged among selected segments, including SMEs in transportation, wholesale and retail trade and primary manufacturing.
BNM said business financing continued to support the economy, with outstanding business loans growing 7.3% year-on-year in June 2026, compared with average growth of 4.1% between 2022 and 2025.
Amid expectations that the conflict could persist, it said banks have exercised greater prudence in assessing borrowers in affected sectors and have maintained disciplined underwriting and risk-taking practices.
