RAM Ratings: Banks’ solid capital buffers support higher dividend payouts

Published on 06 Mar 2026.

Share Tweet Email

Malaysian banks delivered steady earnings in 2025, with a number of banks increasing dividend payouts as strong capital buffers built up during the pandemic were returned to shareholders. Strong asset quality and easing credit costs supported profitability, even as net interest margins (NIMs) narrowed slightly on the back of a policy rate cut and intense funding competition. The average pre-tax return on assets and return on equity of eight selected local banks inched higher to 1.42% and 14.3%, respectively (2024: 1.40% and 14.0%).

“Excess capital accumulated during the Covid-19 pandemic allowed several banks to progressively increase dividends while maintaining healthy capital positions. System capital ratios moderated but remain comfortably above regulatory requirements and closer to pre-pandemic norms,” said Wong Yin Ching, RAM Ratings’ Senior Vice President of Financial Institution Ratings.

The domestic banking industry’s common equity tier-1 ratio declined to 14.2% as at end-December 2025 (end-December 2024: 15.1%). A greater focus on improving return on equity also supported higher distributions. In addition, banks operating under the Standardised Approach for credit risk are expected to benefit from capital savings when Basel reforms come into effect in July this year.

Domestic loan growth eased to 4.8% in 2025 (2024: 5.5%) amid heightened global tariff uncertainties and increased corporate bond market funding. Household loans continued to drive credit expansion, growing 5.3% and outpacing business loan growth of 4.1%. RAM projects system loan growth to come in at 4%-5% in 2026. This is broadly in line with the agency’s GDP growth projection of 4%-5% (2025: 5.2%), underpinned by domestic demand as a result of favourable labour market conditions, increased tourist arrivals and accommodative interest rate environment. Nevertheless, escalating Middle East geopolitical tensions and persistent global trade uncertainties have amplified downside risks and could weigh on economic activity and sentiment. However, it is still premature to assess the full impact of these risks.

Asset quality remains a key anchor of the banking system’s resilience. The gross impaired loan ratio fell further to a historical low of 1.37% as at end-December 2025 (end-December 2024: 1.44%) and is expected to stay intact in 2026. Credit costs continued to ease, backed by recoveries, writebacks and the reclassification of loan provisions to the securities portfolio following the completion of a major rescheduling and restructuring exercise for a large corporate borrower. Consequently, the average loan credit cost ratio of the eight banks improved markedly to 11 bps in 2025 (2024: 18 bps).

Average NIMs contracted to 2.03% in 2025 (2024: 2.06%) owing to the 25 bp overnight policy rate cut in July last year as well as intense deposit and loan competition, but are anticipated to see a mild expansion in 2026 given the full-year impact of deposit repricing. Encouragingly, margins edged up q-o-q to 2.02% in 4Q 2025 (3Q 2025: 1.99%) as deposits were gradually repriced downward, although partly offset by seasonal year-end deposit competition.

The eight selected banks in our roundup are AFFIN Bank Berhad, Alliance Bank Malaysia Berhad, AMMB Holdings Berhad, CIMB Group Holdings Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad, Public Bank Berhad and RHB Bank Berhad.

RAM’s Banking Quarterly Roundup 4Q 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 Arifin 
(603) 2708 8212
sakinah@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

Disclaimer

ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2026 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.