S&P Global: Retail loan growth to remain robust

PETALING JAYA: The banking sector is well-positioned to withstand external shocks, including global trade tensions and softer economic growth, says S&P Global Ratings.

In a report entitled “Sector review: Malaysia’s banks will handle growth dip, trade turmoil”, the agency said the industry is entering this period of uncertainty from a position of strength.

“We expect a dip in credit demand, resulting in slower loan growth of 4% to 5% over the next two years,” said S&P Global Ratings credit analyst Nikita Anand.

She noted that corporate loan expansion would be dampened by “tough external conditions and some refinancing demand being mopped up by the bond markets, where rates are lower”.

Retail loans, however, are expected to remain buoyant.

“Retail loan growth should stay robust, supported by low unemployment rate and rising wages.

“We anticipate that banks’ active management of funding costs will counter the impact of heightened competition for loans and deposits, although strength of retail deposit franchise will be a key differentiator,” Nikita said.

S&P Global Ratings forecast return on assets to hold steady at 1.4% over the next two years but cautioned that “risks are firmly on the downside”.

TA Research took a more optimistic stance, projecting stronger lending momentum in the second half of 2025 (2H25) .

“We expect loan momentum to gain further traction for the remaining part of 2025, underpinned by rising applications and approvals, as well as a supportive macro backdrop,” the research house said.

Consumer lending, which accounts for 58% of system loans, is expected to benefit from firmer household sentiment, resilient labour market conditions, accommodative monetary policy, and recent fiscal support measures, it added.

The research house maintained its 2025 loan growth forecast at 5.7%, supported by consumer and business loan expansion of 6.3% and 4.9%, respectively.

TA Research reiterated its “overweight” call on the sector, citing “resilience in asset quality, capacity to support credit flows and decent earnings visibility”, and named Public Bank Bhd and Hong Leong Bank Bhd as top picks.

Meanwhile, Hong Leong Investment Bank (HLIB) Research warned of near-term pressure on net interest margins (NIMs) following July’s overnight policy rate cut.

“We expect NIM to compress in the third quarter of 2025. However, banks can look to mitigate the impact through optimising their loan-to-fund ratio and possibly prune some pricey fixed deposits,” it said.

Asset quality is expected to remain intact, supported by improved business sentiment after greater clarity on US tariffs.

HLIB Research projected a two-year sector profit compound annual growth rate of 4.9% between 2025 and 2027.

It rated the sector as “overweight” while highlighting inexpensive valuations and an appealing 5% dividend yield.

It has “buy” calls on Affin Bank Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Malayan Banking Bhd, Public Bank and RHB Bank Bhd.

CIMB Research, however, struck a more cautious tone, maintaining a “neutral” view on the sector.

“Despite looming macroeconomic shifts – including rate cuts and a potential economic slowdown in 2H25 – the sector remains well-positioned to weather the headwinds, supported by strong fundamentals,” it said.

Capital buffers remained solid, with a Common Equity Tier 1 ratio of 14.9% and total capital ratio of 18.4% as of July, while loan loss reserves stood at 128.9%.

CIMB Research warned that earnings growth would likely be muted, with 2025 core net profit forecast to contract 3.4% before recovering 5.5% in 2026.

“The absence of meaningful top-down macro drivers is unlikely to drive a more positive rerating of the sector,” it noted.

Within its stock selection, CIMB favoured Public Bank, RHB Bank and Hong Leong Bank for their domestic-centric operations and strong asset quality.