Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said total loans will grow by around 5.5% in 2025, supported primarily by household and non-household segments.
“Full employment is expected to continue into 2025, which suggests that household debt repayment capacity would remain fairly intact.
“Meanwhile, expansionary fiscal policies, higher government development expenditure and improving external sector would translate into further demand for business financing,” he told Bernama.
Afzanizam also highlighted that the anticipation of interest rate cuts by the US Federal Reserve (US Fed) will influence the bond yield trend.
He said there is a high tendency for the US Treasury bond yields to be lower next year.
“Given that local bond yields are highly influenced by US Treasury bonds, we can expect banks to record mark-to-market gains in their fixed income assets given that lower bond yields would mean higher bond prices.
“This would help to improve banks’ non-interest income,” he said, noting that as highly regulated entities, banks would continue to prioritise asset quality.
As a result, he expects credit underwriting standards among banks to remain high.
Additionally, Afzanizam said concerns over external events, especially president-elect Donald Trump’s policies on international trade will be closely monitored for potential impacts on the banking sector.
He added that the fuel subsidy rationalisation for RON95 in mid-2025 will be a key risk factor, especially its impact on the general price level and its subsequent effect on the debt repayment trend.
On the overnight policy rate (OPR), most economists expect Bank Negara Malaysia to hold it steady at 3% throughout 2025 as the central bank continues to exercise vigilant assessment of inflation.
“To a large degree, this will be positive for banks as the impact on net interest margin (NIM) will be neutral to positive,” he said.
However, he said the intense competition in the deposit market could pose a serious challenge to the cost of funds, and ultimately NIM.
“Additionally, we expect competition from the digital banks to be more apparent as customers become more accustomed to their product offerings,” he said.