KUALA LUMPUR, March 31 — Malaysia’s banking system total capital ratio remained strong at 18.1 per cent of total risk-weighted assets in December 2025, compared with 18.2 per cent in June 2025, with excess capital buffers amounting to RM139.3 billion from RM138.9 billion previously, said Bank Negara Malaysia (BNM).

In its Financial Stability Review for the Second Half of 2025 (2H 2025), BNM said capital conservation strategies, including dividend reinvestment programmes, continued to support the maintenance of strong capital buffers.

“These buffers reinforce banks’ capacity to sustain lending activities, particularly in the current environment where businesses and households continue facing elevated cost pressures.

“Strong capital positions also enable banks to withstand unexpected shocks, as evidenced in BNM’s recent stress test exercise,” it said.

BNM said the country’s banking system deposits also grew by 4.5 per cent year-on-year, up from 3.8 per cent in June last year, driven by deposits from resident businesses and individuals, which accounted for 73.3 per cent of total deposits.

The central bank stated that its non-bank financial institutions (NBFIs) and the government remained the next largest contributors at 9.8 per cent and 6.4 per cent, respectively, in December 2025, compared to 8.9 per cent and 7.2 per cent, respectively, in June 2025.

“Fixed deposits, including commodity murabahah, continued to underpin the stability of banks’ funding structures, accounting for over half of total banking system deposits (50.7 per cent; June 2025: 51.4 per cent; 2015-2019 average: 51.7 per cent),” it said.

In addition to liquidity balances at BNM, it said banks continued to maintain significant government bonds and sukuk, which can be pledged in the interbank market or with BNM for access to extra liquidity.

It said the overnight policy rate (OPR) reduction in July 2025 also helped to lower bank funding costs.

“Reflecting these developments, the weighted average cost of funds decreased to 2.54 per cent as of December 2025 (June 2025: 2.75 per cent),” it said.

Overall, it said banks are ideally positioned to facilitate credit intermediation as funding and liquidity concerns remain well-contained, thanks to prudent liquidity management and diversified funding sources.

However, risks from banks’ external debt remained limited as onshore banks’ external debt rose slightly in the 2H 2025 to RM299.1 billion from RM297 billion in June 2025.

Including external debt of banks operating in the Labuan International Business and Financial Centre (LIBFC), overall banks’ external debt amounted to RM451.3 billion from RM448 billion in June 2025, mainly driven by onshore banks, reflecting their higher interbank borrowings from related counterparties.

The increase in overall banks’ external debt was partly offset by foreign exchange (FX) revaluation gains following the appreciation of the ringgit against the US dollar over the period.

As at December 2025, funds sourced from external counterparties accounted for only 7.8 per cent of total banking system liabilities and equity, indicating that banks’ limited reliance on external sources to support their funding needs.

Following the OPR cut in July 2025, net interest margins (NIM) narrowed as the reduction in interest income on loans outpaced the decline in funding costs.

After easing through September 2025, NIM subsequently stabilised at 1.99 per cent as at December 2025 (June 2025: 2.01 per cent; 2015-2019 average: 2.11 per cent), underpinned by lower interest expense on deposits as maturing fixed deposits were rolled over at lower prevailing interest rates.

Profitability was further supported by trading and investment income, which amounted to RM7.6 billion in the 2H 2025 (1H 2025: RM8.3 billion).

Moving forward, BNM said banks’ profitability is expected to remain supported by sustained interest income, underpinned by sound asset quality, continued credit growth and positive domestic growth prospects.

However, this outlook remains subject to uncertainties surrounding the impact of the conflict in West Asia and trade tariffs on Malaysia’s economic and financial conditions. — Bernama