PBBANK: Malaysian Banking Sector Maintains Overweight Rating Amid Robust Growth

The Malaysian banking sector continues to demonstrate robust performance, with analysts maintaining an “Overweight” rating, citing healthy growth drivers and resilient asset quality. The system’s liquidity and capital indicators remain strong, reinforcing the domestic banking system’s stability.

Performance Review

As of October 2025, year-to-date (YTD) system loan growth stood at 4.7%, aligning well with the projected 4.5-5.0% forecast for the year. Overall system loans expanded by 5.4% year-on-year (YoY) and 0.5% month-on-month (MoM). Household loans showed a similar growth trajectory of 5.4% YoY, primarily driven by residential mortgages (+6% YoY), auto loans (+7% YoY), and credit cards (+8% YoY). Non-household loan growth also contributed significantly, increasing 5.2% YoY, with notable contributions from the finance (+17% YoY), utilities (+38% YoY), and real estate (+6% YoY) sectors.

Robust leading indicators signal further acceleration in loan growth. Loan applications and approvals remained strong in October, contributing to YTD totals of MYR1.30 billion and MYR0.67 billion respectively, marking increases of 4% and 3% YoY. While YTD loan disbursements were muted, October saw a sequential pick-up of 7% MoM. Furthermore, the cost of borrowing has eased following a July policy rate cut, evidenced by a 23 basis points decline in the average lending rate compared to June 2025 levels.

Asset Quality and Liquidity

The banking system’s asset quality remained robust. Absolute gross impaired loans (GILs) were down 4% YoY, with the system GIL ratio easing to 1.39% in October 2025 from 1.53% in October 2024. This improvement was supported by YoY declines in both household and non-household GIL ratios, which stood at 1.06% and 1.90% respectively. The declining GILs allowed banks to release existing provisions, resulting in a drop in the loan loss coverage (LLC) ratio to 87.6%.

Liquidity levels remain strong, with the system’s Common Equity Tier 1 (CET-1) ratio stable at 14-15% over the past 12 months. The Liquidity Coverage Ratio (LCR) remained healthy at 147.5%, well above the regulatory floor of 100%, despite a slight month-on-month decline. However, deposits were a minor laggard, growing 4% YoY. The system loan-to-deposit ratio (LDR) continued to tighten to 89.5%.

Future Outlook

Analysts anticipate further acceleration in loan growth during the final two months of the year, with spillover effects expected into 2026. The healthy capital levels and ample liquidity within the system are expected to support this continued growth trajectory. The sector’s resilience, underpinned by robust indicators and improving asset quality, reinforces the positive outlook.