Moody's Projects Stable Outlook For Malaysia's Banking Sector In 2025

KUALA LUMPUR, March 12 (Bernama) -- Malaysia’s banking system outlook remains stable this year, supported by steady economic performance and sound fundamentals of banks, said Moody’s Rating.

In a note on Wednesday, the rating agency said that economic growth will be driven by healthy domestic consumption and strong foreign direct investment (FDI).

“We expect key credit metrics of Malaysian banks to be stable in 2025. Asset quality will be stable because of the strong labour market, although some sectors such as wholesale and retail trade and manufacturing continue to face challenges.

“Profitability has improved, driven by lower credit costs, but will hold steady as we expect margins and credit costs to be maintained at current levels,” it said.

It noted that banks remain well-capitalised, with expectations that they will optimise capital structure by increasing dividend payouts.

It opined that funding and liquidity will remain stable, supported by moderation in deposit competition and strong liquidity buffers, in addition to the government’s continued support for banks in times of stress.

Meanwhile, Moody’s Rating said Malaysia’s real gross domestic product (GDP) will likely expand by 5 per cent in 2025, largely keeping pace with the 5.1 per cent growth in 2024.

“A stable labour market, largely benign inflation, and fiscal transfers will support consumption, despite some risks from a planned fuel subsidy reform,” it said.

Additionally, it said that government policies, such as the National Energy Transition Roadmap and the New Industrial Master Plan, will drive private and public investments.

“These policies will also improve FDI flows related to shifting regional supply chains and enhancement of Malaysia’s semiconductor manufacturing and data centre capabilities.

“We expect the implementation of these strategies to support credit growth in the next few years,” it said.

At the same time, it said that risks associated with trade tariffs and geopolitical tensions will be mitigated by Malaysia via expanding market access and diversifying trade partners, including deepening economic cooperation with neighbouring Singapore.

“We also expect Bank Negara Malaysia to maintain its neutral monetary policy stance at around current levels in 2025, which will not constrain credit demand,” it added.

-- BERNAMA