Malaysia’s six largest banks are positioned to maintain stable profitability despite encountering narrowing net interest margins and heightened competition for deposits, according to a report by Fitch Ratings.

While Malaysia’s broader economic growth is expected to moderate in 2026, the rating agency noted that steady domestic demand and stable inflation will continue to support the banking sector. Asset quality trends remain favorable, with Stage 2 loans showing improvement and credit costs remaining below historical averages.

Fitch highlighted that the banks’ strong deposit bases and proactive balance-sheet management will help cushion the impact of margin compression and deposit rivalries. Additionally, the credit ratings of these top lenders remain underpinned by adequate capital buffers, though Fitch cautioned that any severe deterioration in risk profiles, asset quality, or capitalization levels could trigger negative rating actions.

The report comes alongside central bank data from May showing sustained growth in total bank lending—driven by record business loan volumes—even as gross impaired loans saw a slight uptick during the same period.

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