3. Digital Banking and Fintech Advancements • The rise of digital banks and increased adoption of digital financial services will intensify competition in the banking sector. • Banks will need to strengthen fintech partnerships, enhance cybersecurity, and leverage data analytics to maintain their competitive edge. 4. Expansion of Sustainable and Green Finance • Malaysia’s commitment to ESG principles will drive growth in sustainable financial products, including green bonds, climate-linked financing, and impact investment funds. • The financial sector is expected to play a key role in financing sustainable infrastructure projects and supporting Malaysia’s transition to a low-carbon economy. 5. Challenges and Potential Risks While the economic outlook remains positive, several downside risks may introduce volatility: • Inflationary pressures, particularly due to uncertainty over domestic fuel subsidy policies. • Geopolitical uncertainties that could impact investor confidence and economic policymaking. • Trade tensions and global economic slowdown risks, which may affect Malaysia’s export-driven industries. • Capital market volatility and geopolitical risks, including fluctuating commodity prices and external market disruptions. Key Economic Drivers in 2025 Several factors will support Malaysia’s economic resilience: • Strong domestic demand, business expansion, and government infrastructure projects will drive sustained growth. • A robust labour market and lower unemployment rates will boost consumer spending. • The construction sector will be strengthened by the Public-Private Partnership Master Plan 2030 (PIKAS 2030), promoting further economic activity. • The tourism sector is expected to see a full recovery, supported by increased tourist arrivals, including business travellers attending Malaysia’s 2025 ASEAN chairmanship events. While Malaysia’s economic fundamentals remain strong, sustaining stability will require prudent risk management, strategic capital allocation, and effective liquidity planning. Financial institutions, businesses, and policymakers must remain agile, capitalising on opportunities in a dynamic global landscape while mitigating potential disruptions. BANKING SECTOR REVIEW AND OUTLOOK Overview of 2024 Malaysia’s banking sector had a strong year, driven by solid economic performance, business expansion, and robust consumer spending. These factors sustained high credit demand from both households and businesses, bolstering banks’ revenue growth. A stable profit rate environment prompted banks to offer competitive financing products, further stimulating demand for consumer and business financing. At the same time, banks strategically leveraged NIMs to strengthen profitability. Despite some pressure on lending margins, most banks effectively mitigated these challenges by capitalising on market volatility, particularly in capital and foreign exchange markets, securing larger trading gains. Outlook for 2025 Looking ahead, Malaysia’s banking sector is set to benefit from sustained economic resilience, driven by strong domestic demand, business expansion, and large-scale infrastructure projects. Financing demand is expected to remain robust, with business financing serving as the primary catalyst for domestic financing growth. The stable economic momentum should support steady bank margins and manageable credit costs, while deposit competition is anticipated to remain rational. Additionally, with no OPR cuts expected, banks’ NIMs are likely to remain stable. However, several downside risks must be considered: • Slower-than-expected GDP growth, which could dampen financing expansion. • Persistent inflationary pressures, potentially curbing consumer spending and financing demand. • Heightened deposit competition, which may compress interest margins. • Global economic volatility, including geopolitical uncertainties and external shocks, which could impact business confidence and financial market stability. 43 w w w . b a n k i s l a m. c o m 01 02 03 04 MD&A – STRATEGIC REVIEW 05 06 07 08 09
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