Malaysia’s banks are heading into 2023 with a forecast that sounds almost boring: 5-6 percent loan growth. That is the point. After pandemic shocks, a blanket loan moratorium that ended in 2021, and inflation that keeps the central bank busy, boring looks good.
S&P Global Ratings put out the number Sunday. The agency sees steady domestic growth, high capital cushions, and unemployment that remains low enough to keep consumers spending. Those forces, it argues, will outweigh the drag from rising interest rates and higher prices. Ivan Tan, a director at S&P, put it bluntly: “The economy is normalising quickly, and that underpins our view that credit demand will stay positive.”
Private consumption drives about 60 percent of Malaysia’s GDP. That engine still has fuel. A tight labour market is one reason. Another is pent-up demand — people spending on travel, food, and education after years of restrictions. Corporate borrowing is also picking up. Bank Negara Malaysia data shows annual working-capital loan growth hit 7.4 percent in September. That is the fastest pace since 2015.
The GDP numbers tell the same story. S&P projects real GDP will expand 4.5 percent on average over 2023 through 2025. That is a moderation from an estimated 6.6 percent this year. But moderation is not collapse. It is the normalising Tan described.
Infrastructure work under the government’s twelfth Malaysia Plan should help. So should continued investment in renewable energy and data centres. Tan expects those to keep term-loan growth in the mid-single digits. None of this is explosive. It is steady.
The risks are real but contained. S&P warns that pockets of stress are forming among lower-income households and small and medium-sized enterprises. Those groups were already weakened by the pandemic. The blanket loan moratorium is long gone. Targeted repayment assistance is tapering off. That means some borrowers will struggle.
“We do expect non-performing loans to edge up, but from a very low base,” Tan said. The system NPL ratio stood at 1.4 percent at the end of September. The 10-year average is 1.7 percent. So there is room. The provisioning buffers that banks built during the crisis should absorb the hit. That is not guesswork. It is what those buffers were designed for.
This is not a story of booming credit or looming disaster. It is a story of an economy settling into a new rhythm. Loan growth in the 5-6 percent range is modest by historical standards. But after the whipsaw of the last three years, modest feels stable. Banks are not racing to lend. They are not bracing for defaults. They are operating.
The headline number — 5-6 percent — is the forecast. The context is what makes it matter. Malaysia’s banks went into the pandemic with strong capital. They built extra provisions during the crisis. The labour market tightened faster than many expected. Corporate borrowers started taking working-capital loans at the fastest clip in seven years. All of that feeds into the S&P view.
Rising interest rates and inflation are real headwinds. They will slow some activity. But the agency’s analysis says the tailwinds are stronger. For now, that is the bet.
