Kuala lumpur: RAM Rating Services Bhd (RAM Ratings) observed an increase in profitability for eight selected local banking groups rated by the credit rating agency during the third quarter of 2025 (3Q 2025). The improvement was primarily due to reduced loan loss provisions and, to a lesser extent, stronger non-interest income, despite a contraction in net interest margins (NIMs).
According to BERNAMA News Agency, Wong Yin Ching, senior vice-president of financial institution ratings, stated that the banking sector's loan growth gained some momentum in 3Q 2025, although the annualised nine-month growth of 4.5 per cent for 2025 remained below the 5.5 per cent expansion recorded for the full year of 2024. The average NIM among the eight banks narrowed by five basis points to 1.99 per cent in 3Q 2025, compared to 2.04 per cent in 1Q 2025 and 2.03 per cent in 2Q 2025. This change reflects a 25-basis point cut in the overnight policy rate in July 2025 and ongoing deposit competition.
Wong elaborated that with the seasonal year-end deposit competition increasing, margins are expected to remain under pressure in the fourth quarter of 2025. She noted that loan credit cost ratio trends among the cohort of banks were mixed in 3Q 2025. Despite additional overlays being set aside due to ongoing macroeconomic challenges, write-backs and the reclassification of loan provisions to the securities portfolio for a large corporate borrower more than compensated for the increase in provisions. Consequently, the average loan credit cost ratio of the eight banks improved to an annualised 10 basis points in 3Q 2025, compared to 9 basis points in 1Q 2025 and 21 basis points in 2Q 2025.
Furthermore, Wong highlighted that the gross impaired loan ratio slightly decreased to 1.41 per cent by the end of September 2025, down from 1.44 per cent at the end of December 2024, marking a historical low. She mentioned that direct loan exposures to US tariffs are minimal, and secondary effects from global trade disruptions appear limited at present. However, RAM remains cautious about potential downside risks, as it anticipates export growth to slow and the effects of US reciprocal tariffs, along with payback from earlier front-loading activities, to start becoming evident.