ALL is stable on the business and household (HH) front, as per Bank Negara Malaysia (BNM)’s first half of 2025 (1H25) Financial Stability Report (FSR). Businesses are sound, but may continue to face cost pressures into 2H25.
“The banking system’s HH debt-to-GDP ratio has risen marginally but HH financial assets provide more than ample cover at 2.1x HH debt. Asset quality of both segments remains stable,” said Maybank Investment Bank (MIB).
MIB maintains Neutral in the banking sector. Amid external volatility, businesses remained resilient. There was, however, a slight dip in their debt servicing ability, as the median interest coverage ratio (ICR) slipped while the share of firms-at-risk rose in quarter two 2025 (2Q25) due to ongoing cost pressures e.g. higher labour and material costs.
Cost pressures are expected to persist into 2H25 from domestic policies such as the expanded SST scope, water and electricity tariff restructuring and the enforcement of mandatory EPF contributions for foreign workers.
The business impaired loan ratio was stable at 3.1%. Household (HH) debt expanded 5.9% end-June 2025, while the aggregate HH debt-to-GDP and banking system HH debt-to-GDP ratios rose marginally.
Financial assets expanded 5.4% in 1H25, driven mainly by savings held in deposits and contributions to the EPF, which collectively accounted for 68.4% of HH financial assets.
There is still an ample buffer with HH financial assets accounting for 2.1x HH debt. Meanwhile, the HH impaired loan ratio remained low at 1.1% end-June 2025.
The Malaysia Overnight Rate (MYOR) and the Malaysia Islamic Overnight Rate (MYOR-i), which gradually replace the KLIBOR (which will cease to exist on 1 Jan 2029).
The MYOR is derived from actual overnight interbank transactions and is therefore more transparent and reflective of actual funding costs. KLIBOR-linked loans make up just 3.2% of total outstanding loans.
We expect an “adjustment spread” to be used to standardise borrowing rates upon converting KLIBOR loans to MYOR loans. —Oct 21, 2025
Main image: Gazeta Prawna
