Strong capital buffers to offset margin pressure on Malaysian banks: Fitch

Malaysian banks are well-positioned to absorb potential margin pressures, even amidst global economic uncertainties and low interest rates, according to Fitch Ratings. The agency anticipates that while external volatility and rising borrowing costs might slightly impact borrowers' repayment abilities, the effect on Malaysian banks will be contained due to their strong asset quality.

Fitch highlighted that any normalization of credit costs from current low levels is expected to be gradual, posing no significant threat to asset quality. The banking sector's capital position remains robust, with the Common Equity Tier 1 ratio at 14% in May 2026, comfortably exceeding regulatory requirements. Notably, AMMB Holdings Berhad has improved its capital standing through an internal ratings-based model, reducing risk-weighted assets.

Public Bank Berhad and Hong Leong Bank Berhad, however, continue to use a standardized approach, resulting in higher risk-weighted asset densities compared to their peers. Despite this impacting reported capital efficiency, Fitch believes it positions them well for the final implementation of Basel III reforms. The overall health of the banking sector's loan book is bolstered by improving loan growth, low non-performing loan (NPL) ratios, a decrease in Stage 2 loan metrics, and historically low credit costs.