RAM Ratings: 3Q 2025 bank profitability edges up on lower loan provisions

Published on 08 Dec 2025.

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RAM Ratings saw an uptick in profitability in the latest financial results of eight selected local banking groups rated by RAM. The improvement was largely driven by reduced loan loss provisions and to a smaller extent, stronger non-interest income, despite a contraction in net interest margins (NIMs).

The banking sector’s loan growth gained some momentum in 3Q 2025, though the annualised 9M 2025 growth of 4.5% remained below the 5.5% expansion for full-year 2024. Growth continued to be led by mortgages and passenger vehicle financing. “The average NIM of the eight banks narrowed 5 bps to 1.99% in 3Q 2025 (1Q 2025: 2.04%, 2Q 2025: 2.03%), reflecting the 25-bp overnight policy rate cut in July 2025 and ongoing deposit competition. With the seasonal year-end deposit competition heating up, margins will continue to be weighed down in 4Q 2025,” said Wong Yin Ching, RAM’s Senior Vice President of Financial Institution Ratings.

In 3Q 2025, loan credit cost ratio trends among the banks in the cohort were mixed. Although additional overlays were set aside in view of ongoing macroeconomic headwinds, write-backs and reclassification of loan provisions to the securities portfolio for a large corporate borrower more than offset the increase in provisions. Overall, the average loan credit cost ratio of the eight banks improved to an annualised 10 bps in 3Q 2025 (1Q 2025: 9 bps; 2Q 2025: 21 bps).

Meanwhile, gross impaired loan ratio inched down to 1.41% as at end-September 2025 (end-December 2024: 1.44%) – a historical low. Direct loan exposures to US tariffs are minimal, and secondary effects from global trade disruptions appear limited at this stage. Nevertheless, we remain vigilant about downside risks, as RAM expects export growth to moderate and the effects of US reciprocal tariffs and payback from earlier front-loading activities to begin materialising.

The average pre-tax return on assets and return on equity of the eight banks clocked in higher at an annualised 1.44% and 14.6%, respectively (1Q 2025: 1.38% and 14.1%, 2Q 2025: 1.39% and 14.1%). For 4Q 2025, further margin compression and lingering asset quality risks will likely put a lid on banks profitability, although further investment and trading gains from fixed-income portfolios may help mitigate these pressures. On a brighter note, NIMs are expected to widen in 2026 as deposits start to reprice downward.

RAM’s Banking Quarterly Roundup 3Q 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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