Local banks may face slower loan growth, asset quality setback due to US tariff on Malaysia

KUALA LUMPUR: The domestic banking sector is expected to be impacted by slower economic growth due to the US imposing a 24 per cent tariff rate on Malaysia. Maybank Investment Bank Bhd (Maybank IB) said this could occur through slower loan growth, potential interest rate cuts to stimulate the economy and possible asset quality issues that could lead to higher credit costs. "Our economics team preliminarily estimates slower gross domestic product (GDP) growth of 4.

3 per cent, down from the current 4.9 per cent, which would lower our industry loan growth estimate to 4.7 per cent, down from 5.



5 per cent. "The team is also of the view that we could see a 25 basis point cut in interest rates, as opposed to the current assumption of a stable overnight policy rate (OPR) of 3.00 per cent.

"Regarding asset quality, what is positive is that the industry's gross impaired loans ratio of 1.45 per cent at the end of Feb 2025 is even lower than the pre-pandemic level of 1.51 per cent at the end of Dec 2019.

"Moreover, most banks still have outstanding management overlays that can be utilised," it said in a note today. Maybank IB said in the event of slower economic growth, its sensitivity analysis assumes a one per cent cut in loan growth, a 25 basis points cut in the OPR, and a 20 per cent increase in credit costs across the board. This points to a fairly manageable three to seven per cent impact on earnings.

Despite this, the firm said dividend yields would remain attractive, ranging from four per cent to six per cent. The firm noted that the least impacted in terms of earnings would be domestic-centric banks such as Public Bank Bhd, AMMB Holdings Bhd and Hong Leong Bank Bhd, all of which have been given a "Buy" call on its list.© New Straits Times Press (M) Bhd.