Malaysia's Q1 loan growth set to stall as businesses turn cautious

Banks’ loan loss provisioning is also expected to rise between $203.82m to 1b in Q1 2026F.

Malaysia’s strong loan growth in Q1 2026 is unsustainable, and high oil prices would result in slower growth over the next few quarters, said CGS International (CGSI).

The banking industry’s total loan growth expanded by 1.6% in Q1 2026, or an annualised growth rate of 6.4% for 2026F.

However, CGSI thinks that the high loan growth in Q1 would not be sustainable, at least in the next 2-3 quarters.

“We believe an environment of high oil prices would result in more cautious investments by businesses and commitments for purchase of big-ticket items by consumers,” it said.

Banks’ loan loss provisioning is also expected to rise between $203.82m to $254m (MYR800m to MYR1b) in Q1 2026F, from MYR373.5m in Q4 2025.

A recent $1.3b support package announced by the Bank Negara Malaysia (BNM) will help prevent a spike in bad loans, however.

"The central bank's facility will support SMEs facing operational disruptions and cash flow challenges. Guarantees under the package, especially for [small and medium enterprises (SMEs)] without sufficient collateral, could ensure flow of credit to this sector," said Nikita Anand, credit analyst at S&P Global Ratings, wrote in a separate report published 28 April.

On the upside, Malaysian banks are expected to post higher net interest margin in 2026F and will likely see dividend payout ratios rise sector-wide, CGSI said.