WITH HEADLINE inflation expected to remain within the 1.5%–2.5% range, Bank Negara Malaysia (BNM) is likely to maintain the Overnight Policy Rate (OPR) at its current level throughout 2026.
This outlook is supported by relatively subdued demand-side pressures, alongside ongoing fuel subsidies, such as RON95 and diesel, which continue to cushion the impact of higher global costs.
“Overall credit conditions remain stable. The impaired loans ratio for businesses has improved to 2.8%, largely driven by stronger margins among larger corporates,” said TA Securities.
That said, smaller enterprises are still grappling with narrowing margins amid sustained cost pressures, pointing to emerging risks within the SME segment.
Meanwhile, household balance sheets remain supported by stable labour market conditions.
Debt servicing capacity remains manageable, with the median debt service ratio (DSR) at 33%, while the household impaired loans ratio stays low at 1.0%, indicating limited stress at the aggregate level.
Looking ahead, strengthening cyber and operational resilience remains a top priority for the Malaysian financial sector.
This reflects an increasingly complex threat landscape alongside the rapid expansion of digital financial services, which heightens exposure to operational and cyber risks.
Encouragingly, banks are also showing greater accountability and transparency in handling fraud cases.
“While our Overweight stance remains supported by stable growth, resilient asset quality, and solid capital buffers, the overall risk profile is increasingly tilted to the downside,” said TA.
Key headwinds stem from geopolitical tensions and the risk of a prolonged oil price shock, which could dampen growth and credit demand. Against this backdrop, asset quality is likely to be the main pressure point.
Credit risk remains the primary driver, accounting for 63% of total projected losses. Households are expected to drive the bulk of new impairments.
Lower-income borrowers (earning below RM5,000 per month) account for 59% of those at risk of default.
Borrowers with a DSR above 60% represent the most vulnerable group, making up 74% of at-risk borrowers and 84% of total impaired balances.
Within the business segment, SMEs account for the majority, around 58%, of projected impairments under severe conditions, reflecting their thinner financial buffers and higher sensitivity to prolonged economic stress.
Larger corporates comprise the remaining 42%, with defaults largely concentrated among firms with pre-existing financial weaknesses.
Despite the projected deterioration in asset quality, the banking system remains well-capitalised. —Apr 1, 2026
Main image: Malaysia International Islamic Finance Centre
