Malaysian banks face a mixed outlook, with domestic-focused banks performing better than their internationally exposed peers. Despite this, CreditSights maintains a “Market Perform” recommendation for CIMB, RHB, and AmBank due to low bond liquidity. The overall sector is navigating a challenging economic environment characterised by slower GDP growth and potential margin pressure from a recent rate cut.
Key Highlights from the Malaysian Banking Sector Outlook
The first half of 2025 saw mixed results among the banks. RHB and AmBank, with their greater focus on the domestic market, posted better bottom-line performance. In contrast, CIMB’s profitability was negatively impacted by margin pressure from declining interest rates in overseas markets and the depreciation of the Indonesian Rupiah (IDR) affecting its subsidiary, CIMB Niaga.
Profitability and Margins: AmBank demonstrated resilience with a year-on-year (YoY) Net Interest Margin (NIM) expansion due to its almost entirely domestic operations. Conversely, RHB and CIMB experienced NIM compression due to their larger exposure to foreign markets, particularly Singapore, where interest rates have fallen. The recent 25 basis point rate cut by Bank Negara Malaysia (BNM) is expected to put further pressure on NIMs in the upcoming quarters.
Overall loan growth has been soft, with banks targeting the more profitable mid-market commercial segment while remaining cautious about mass retail lending. CIMB’s loan growth specifically underperformed due to the IDR depreciation and a deliberate strategy to slow growth in overseas markets to protect NIMs. While asset quality remains manageable, there are mixed trends. RHB’s credit costs improved, while CIMB’s remained steady. AmBank saw a rise in credit costs due to higher loan slippages in its business banking and retail segments.
Fee income was weak across the board due to cautious investor sentiment. However, RHB and AmBank were able to offset this with gains from their treasury operations. CIMB’s non-interest income was negatively affected by weaker trading and foreign exchange income.
Malaysia’s Q2 GDP grew by 4.4% YoY, supported by domestic consumption. However, BNM has lowered its full-year 2025 GDP growth forecast to 4.0%-4.8% (from 4.5%-5.5% previously), citing US tariffs and other global uncertainties. BNM also made a pre-emptive rate cut in July, the first since 2020, but further cuts are not expected in the near term.
All three banks maintain healthy capital levels, with RHB leading the pack. Liquidity metrics are also acceptable, with comfortable Liquidity Coverage Ratios (LCRs) even as loan-to-deposit ratios (LDRs) have tightened. Loan loss reserves at RHB and AmBank are lower compared to CIMB’s.
