Malaysia’s banking sector confronts mounting headwinds
From Mazli Noor
Malaysia’s banking industry faces a convergence of structural pressures stemming from recent fiscal policy shifts.
The expanded sales and service tax, increasingly significant utility rate hikes and mandatory EPF contributions for foreign workers have compressed corporate margins, particularly among small and medium enterprises (SMEs).
Bank Negara Malaysia’s (BNM) latest financial stability review reveals that the median cost of goods sold continues to rise steadily, touching 75.4% compared to 74.9% in December 2024.
Of more concern is the uptick in SME gross impaired loans, which rose from 3.4% in H2 2024 to 3.6% in H1 2025, while the broader corporate sector managed to hold steady at 3.1%. With SMEs accounting for over 20% or RM401.8 billion of banking sector loans and 51% of business lending, this disproportionate deterioration bears closer attention.
The erosion in credit quality coincides with largely decelerating growth dynamics. While system-wide loan…
