RAM Ratings: Banks maintain steady profitability in 2Q 2025; margins expected to tighten

Published on 04 Sep 2025.

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Malaysian banks reported stable profitability in 2Q 2025. Despite higher loan loss provisions and, in some cases, more moderate loan growth, the impact was partly cushioned by gains from bond disposals as declining yields lifted bond valuations.

The average pre-tax return on assets and return on equity of eight selected local banks clocked in at an annualised 1.39% and 14.1%, respectively (1Q 2025: 1.38% and 14.1%). Bank profits are expected to come under some pressure in the second half of 2025 owing to margin compression, slower credit demand and asset quality headwinds, although further gains from fixed-income disposals may help offset these factors.

The average credit cost ratio of the eight banks in 2Q 2025 climbed to an annualised 21 bps (1Q 2025: 9 bps; 2024: 18 bps), driven by lower management overlay writebacks and frontloaded provisions amid prevailing macroeconomic uncertainties. The metric is, however, in line with our full-year guidance of 25 bps, which remains below pre-pandemic levels. The banking system’s gross impaired loan ratio was unchanged at 1.4% as at end-June 2025 (end-December 2024: 1.4%) but may edge up slightly to 1.5% by year-end. This is still viewed as robust.

Net interest margins (NIMs) were largely stable in 2Q 2025 compared to the previous quarter, with the eight banks reporting an average NIM of 2.03% (1Q 2025: 2.04%). “Nonetheless, margins are anticipated to contract slightly in the next two quarters following the 25-bp overnight policy rate (OPR) cut in July 2025 and ongoing deposit competition,” said Wong Yin Ching, RAM’s Senior Vice President of Financial Institution Ratings. “At this juncture, RAM does not expect further OPR cuts for the rest of the year unless economic growth slows significantly,” she added.

The banking system’s loan growth eased to an annualised 4.3% in 1H 2025, after a strong expansion of 5.5% in 2024. While the slower growth was broad-based, household loan growth (4.9%) continued to outpace that of business loans (3.4%). We project overall loan growth to moderate to 4.0%-4.5% for full-year 2025 amid trade tariff uncertainties, with secondary impacts likely to take time to fully materialise.

RAM’s Banking Quarterly Roundup 2Q 2025 can be downloaded at www.ram.com.my.

 

Analytical contact
Wong Yin Ching, CFA
(603) 2708 8280
yinching@ram.com.my

Media contact
Sakinah Ariffin
(603) 2708 8212
sakinah@ram.com.my

 

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