Malaysia’s Islamic financing sector is set to grow by 8% in 2024, supported by the ‘Islamic First’ policy embraced by major banks and regulatory backing, RAM Ratings said. The rating agency maintains a stable outlook for the industry, despite global uncertainties.
By the end of 2024, Islamic financing made up 43% of total banking system loans, rising from 42% in 2023. Growth in Islamic financing outpaced conventional banking loans, expanding 8.1% in 2024 compared to 7.9% in 2023, contributing an average of 72% of total loan growth over the past five years.
Deposit growth, however, trailed credit expansion, with Islamic industry deposits increasing to 5.9% in 2024, up from 5.2% in 2023. Islamic term deposits were the main driver, rising 7.4% compared to 4.4% in 2023, while CASA deposits grew at a slower 8.5%, down from 10% the previous year.
RAM Ratings noted that Islamic banks saw improved margins in 2024, unlike conventional banks. “This was primarily due to a higher financing-to-deposit ratio, reduced competition for deposits, disciplined pricing strategies, and targeted CASA growth efforts,” it said.
Looking ahead, profit growth for Islamic banks in 2025 is expected to moderate as trading and investment income normalises, said RAM Ratings co-head of financial institution ratings Sophia Lee. The firm also cautioned that subsidy retargeting in 2H25 and global uncertainties may challenge credit demand, but remains optimistic due to strong domestic demand and ongoing investments.
