Malaysia’s bank lending growth is expected to slow in the second half of 2026 as economic activity moderates, although stronger-than-expected performance in the early part of the year has prompted BMI to raise its full-year loan growth forecast.
In a research report released on July 14, BMI revised its 2026 loan growth forecast to 5.0% from 4.6% previously, citing robust lending momentum during the first five months of the year.
Bank lending accelerated from 4.7% year-on-year in January to 5.7% in May, exceeding the research house’s earlier expectations.
However, BMI expects credit expansion to moderate in the coming months as slower economic growth and heightened global uncertainty weigh on borrowing demand.
The research house forecasts Malaysia’s gross domestic product (GDP) growth to ease to 4.3% in 2026 from 5.2% in 2025, placing it at the lower end of the government’s revised growth target of 4.0% to 5.0%.
BMI also warned that ongoing geopolitical tensions in the Middle East, particularly the US-Iran conflict, alongside weaker global economic prospects, could further dampen credit demand.
Its global team recently cut its 2026 global growth forecast to 2.4% from 2.8%, highlighting risks to Malaysia’s export-oriented economy.
The report expects the slowdown in economic activity to affect lending across major sectors, with construction loans likely to face the greatest pressure.
Data from Bank Negara Malaysia (BNM) showed construction loan growth slowing for a second consecutive month, easing from 9.7% in March to 7.4% in May.
BMI said smaller businesses remain vulnerable to higher operating costs stemming from geopolitical tensions, while uncertainty surrounding the United States’ Section 122 tariff measures could delay capital expenditure decisions, particularly in fast-growing sectors such as data centres.
The research house noted that slower loan growth may not necessarily be negative, particularly given Malaysia’s relatively high household indebtedness.
Household borrowing accounts for about 60% of total loans in the banking system, while data from the Bank for International Settlements showed household credit stood at 69.8% of GDP as at the fourth quarter of 2025.
Malaysia’s household debt service ratio also reached a four-year high of 15.5% during the same period.
BMI expects household loan growth to continue moderating after slowing from 5.8% in May 2025 to 5.2% in May 2026.
The outlook reflects expectations that Bank Negara Malaysia will maintain the Overnight Policy Rate (OPR) at 2.75% through 2027, keeping lending rates elevated and tempering borrowing appetite.
Despite the expected moderation in lending activity, BMI said financial stability risks remain limited.
The research house pointed to the central bank’s recently announced RM5 billion stabilisation relief facility for small and medium enterprises, introduced to cushion businesses against the economic impact of the Middle East conflict.
Malaysia’s banking sector also continues to maintain strong capital buffers.
As at the first quarter of 2026, the aggregate banking system capital ratio stood at 18.1%, well above the regulatory minimum requirement of 10.5%.
While the Common Equity Tier 1 (CET1) and Tier 1 capital ratios have edged slightly lower over the past year, BMI noted that both remain comfortably above Basel III minimum requirements, underscoring the resilience of Malaysia’s banking system
