KUALA LUMPUR: Malaysia’s banking sector is expected to withstand the impact of a higher trade tariff environment, supported by sufficient loss buffers and prudent underwriting standards, Fitch Ratings said.
Its base case assumes no significant escalation in tariff rates, although ongoing uncertainty from rapidly changing trade policies could weaken loan demand and moderately affect asset quality.
“We expect the household sector, which accounts for around 60 per cent of banks’ loans, to stay resilient due to steady job conditions and debt servicing capacities despite its high, albeit stable, leverage.
“The impact from a softer economic outlook may also be mitigated by policy responses such as lower policy rates and fiscal measures,” it said.
The ratings agency said as of March 2025, Malaysia’s six largest banking groups collectively accounted for about 69 per cent to 72 per cent of total system loans and deposits.
Malayan Banking Bhd, Public Bank Bhd, and CIMB Group Holdings Bhd, all designated as domestic systemically important banks (DSIBs), each hold market shares of between 12 per cent and 19 per cent.
The next tier comprises three mid-sized banks with market shares of 5 per cent to 9 per cent each: RHB Bank Bhd, Hong Leong Bank Bhd, and AMMB Holdings Bhd, the parent company of AmBank (M) Bhd.
“We see moderate pressure on banks’ asset yields following Bank Negara Malaysia’s policy rate cut to counter the rising external uncertainties. Credit costs may also rise as some banks rebuild loan-loss buffers.
“Nevertheless, these pressures should be offset by higher market-related income resulting from sustained volatility in financial markets, as well as a 100 basis point cut in the reserve requirement in mid-May 2025,” it said.
Fitch Ratings added that banks’ increasing exposure to small and medium enterprise loans, which typically offer higher yields, is likely to support margins in the near to medium term.
“We therefore expect their risk-adjusted returns to remain broadly steady over the next 12 months,” it adds.
© New Straits Times Press (M) Bhd
