RAM Ratings has left its outlook on Malaysian banking at stable for 2026. The agency’s reasoning rests on balance sheets, not on any cheer about the world outside. Its commentary, Banking Insight 2026 – Steady Against the Tide, credits strong capital, steady funding and liquidity, and asset quality that still looks benign. The strain, it says, could come from external volatility and tougher competition.
“While heightened military tensions in the Middle East, global trade disruptions and US trade protectionist measures could elevate market volatility and pose downside risks to growth, we expect banks’ credit profiles to remain resilient,” said Wong Yin Ching, a senior vice president for financial institution ratings at RAM.
Growth and lending
RAM expects GDP to expand 4.0%-5.0% in 2026, against 5.2% in 2025. It points to domestic demand, a healthy labour market and accommodative interest rates as the supports. The risks, it adds, lean to the downside.
Household lending makes up 60% of system loans and should stay the main engine of growth, helped by continued demand for residential mortgages. Auto financing is the soft spot: RAM expects slower new vehicle sales this year.
Business financing looks less predictable. Wong said demand “could be more volatile, given sensitivity to external trade conditions and supply-chain disruptions” but should get a lift from approved investments and policy initiatives under national master plans.
Capital and asset quality
Banks have been paying out more in dividends as they hand back excess capital built up during the pandemic. “We expect banks to continue prioritising capital efficiency to support shareholder returns while maintaining adequate buffers against downside risks,” said Sophia Lee, also a senior vice president at RAM. Capital remains a key rating strength, the agency said, though the cushions are thinner after the larger payouts. Most banks believe they can meet near-term Basel III reform requirements, and some expect their capital ratios to improve once the rules take effect.
The gross impaired loan ratio for the system fell to a multi-year low of 1.37% at the end of 2025. Lee said credit pressures should stay manageable, but could lift net credit costs if outside challenges drag on. RAM named small and medium enterprises, restructured exposures and unsecured retail portfolios as the areas to watch.
Digital banks and Islamic finance
Digital banks are now fully operational, though their product range is still narrow. Several have changed leaders recently, which Wong read as a possible strategic recalibration as they leave the start-up phase. She does not see them as a material near-term threat to incumbents, partly because Bank Negara Malaysia has capped them at RM3 bil for their first three to five years. Over the medium term, the impact will turn on customer acquisition, products, funding costs and how fast established banks digitalise.
In Islamic finance, RAM says the Capital Market Masterplan 2026-2030, anchored by Maqasid al-Shariah, could open a new growth phase. Delivery depends on the depth of sustainable and transition finance, scalable Shariah-compliant structures and stronger cross-border participation.
