TA Research said loan growth was projected to expand by 6.4% in 2025, with consumer loans remaining the key driver.
PETALING JAYA: The country’s banking sector is set to maintain a robust growth trajectory in 2025, underpinned by resilient consumer demand, supportive policies and stable economic fundamentals.
Despite global headwinds, the sector continues to demonstrate strong fundamentals and adaptability.
According to TA Research, loan growth was projected to expand by 6.4% in 2025, with consumer loans remaining the key driver.
This growth, slightly higher than the anticipated 6.3% increase this year, is expected to be supported by a buoyant labour market, steady consumer demand, and favourable government policies.
“Business and small-and-medium-enterprise (SME) loans are also expected to gain momentum, driven by robust manufacturing, technology and construction activity,” the brokerage highlighted in its report yesterday.
Net interest income (NII) was anticipated to grow healthily by 5.3% and 5.1% year-on-year (y-o-y) in calendar years 2025 and 2026, respectively, buoyed by robust loan growth and stable net interest margins (NIM).
Islamic banking operations are also forecast to see positive growth, with income projected to rise by 6.3% and 6.7% y-o-y over the same period.
TA Research maintained an “overweight” stance on the sector, highlighting Public Bank Bhd
, CIMB Group Holdings Bhd and Malayan Banking Bhd as its top picks.
“There is potential for upside due to improving investor confidence, favourable economic indicators and a stable domestic political environment,” it stated.
TA Research noted that loan growth accelerated steadily in 2024, as evidenced by the latest data from October, which showed a 6% y-o-y expansion, with year-to-date (y-t-d) growth at 4.1%.
This marked a significant improvement from October 2023, when loan growth stood at 4% y-o-y and 3.4% y-t-d.
“Consumer loans remain the backbone of loan growth, rising 6.4% y-o-y and 5% y-t-d,” it pointed out.
TA Research projected that consumer loans, which make up nearly 60% of total loans, would grow 6.7% y-o-y in 2025.
Meanwhile, business loans also demonstrated marked improvement, growing 5.4% y-o-y and 2.8% y-t-d.
However, TA Research acknowledged that business loan growth fell short of the full-year projection of 5.9%, hindered by geopolitical tensions, China’s slower-than-expected recovery and uncertainty in global financial markets.
“We project business loans to grow by 6% in 2025, up from an estimated 5.4% in 2024,” it said.
Sector-wide NIM was projected to improve by one to five basis points, underpinned by easing funding cost pressures and expectations that Bank Negara would maintain the overnight policy rate (OPR) at 3%, the brokerage said.
However, competition in asset yields and the potential abolition of the Rule of 78 could weigh on NIM.
Non-interest income was forecast to expand by 9.1% in 2025 and 9.8% in 2026, driven by market volatility, increased demand for wealth management products, and rising capital market activities, TA Research estimated.
It noted that banks with established investment banking divisions were well-positioned to benefit from these trends.
The sector’s asset quality remained strong, with total impaired loans declining to RM30.9bil in October 2024.
Consumer and business impaired loans showed stability, reflecting the banks’ prudent risk management practices.
The banking system also remained well-capitalised, with a common equity tier one ratio of 14.4% and a total capital ratio of 18%.
“Provisions are expected to improve, supported by a lower gross credit cost assumption for 2025 and 2026,” TA Research stated.
Management overlays, totalling RM7.6bil, provided additional buffers against potential risks.
According to TA Research, operating expenses in the sector are expected to rise by 7% in 2025 and 2026 due to higher personnel costs, IT investments and marketing expenditures.
Cybersecurity and digital infrastructure demands have been identified as key drivers of rising costs.
Nonetheless, banks were forecast to maintain a stable cost-to-income ratio of around 45.9% through efficiency gains, the brokerage estimated.
Despite some banks trading at elevated valuations, the sector was deemed an attractive investment opportunity, with a price-to-book (P/B) valuation of 1.06 times for 2025 and a projected return on equity of 10.2%, TA Research projected.
Sector earnings were anticipated to grow by 6% to RM37.6bil, driven by loan growth and stabilising margins, it added.
