- Malaysian banks proved their stability during Covid-19 — current tariff risks appear more manageable by comparison.
- Banks are well-buffered, with RM4.8 billion in management overlays that can absorb potential credit losses.
- We highlight our top bank stock picks in this article — read on for the names and target prices.
With the introduction of new US tariffs, it’s fair to ask: could this affect Malaysian banks? Many local businesses are export-driven, and weaker trade performance could put pressure on loan repayments. Malaysian banks have shown time and again that they can handle uncertainty, and we believe they’ll weather this storm too.
Resilience in Tougher Times
Covid-19 was a major stress test for the economy—and for banks. Yet, Malaysian banks came through with relatively stable asset quality. Asset quality refers to the health of a bank’s loans, and it’s typically measured by the gross impaired loan (GIL) ratio, which tracks the percentage of loans that are not being repaid on time.
During the pandemic, the GIL ratio only rose slightly in early 2020, then quickly stabilized and stayed within a comfortable range through 2022. That suggests a level of discipline and prudence across the system.
Now compare that to the current tariff situation. While the new US tariffs might squeeze exporters’ earnings, they’re unlikely to cause the kind of widespread disruption that Covid-19 did. In other words, we foresee a much smaller impact on borrowers—and by extension, on the banks.
Banks Still Carry Buffers
Malaysian banks are still holding sizable management overlays. These are additional provisions set aside during previous periods of uncertainty, amounting to around RM4.8 billion across the sector, as of the end of 2024. These funds can be used to absorb any potential increase in bad loans or even be written back to boost profits if things stay steady. That gives banks a lot of room to maneuver.
As during the pandemic, we expect banks to proactively engage with borrowers who might be affected by the tariffs, potentially offering repayment assistance or restructuring options to cushion the impact.
While there are risks—like slower loan growth or a bigger-than-expected dip in asset quality—we think the upside outweighs the downside.
Our Choice of Bank Stocks
If you’re looking to gain exposure to the sector, our analysts have three main picks:
1. AMMB Holdings Bhd (KLSE: 1015) Add, Target Price: RM6.39
AMMB, or Ambank, is expected to expand its net interest margin (NIM) in FY2025, which means it could earn more from its loans. It also holds a management overlay of RM1.1 billion, which could help boost profits.
2. Hong Leong Bank Bhd (KLSE: 5819) Add, Target Price: RM31.40
HLB stands out for having one of the lowest GIL ratios in the sector—showing strong credit quality. With expansion coming from its associate, Bank of Chengdu, we also expect HLB to deliver above-industry loan growth.
3. Public Bank Bhd (KLSE: 1295) Add, Target Price: RM5.81
Public Bank has a solid RM1.26 billion in management overlays as of end-2024, which provides a cushion for any market shocks. Its recent acquisition of LPI (an insurance company) should also drive earnings growth.
Conclusion
The external environment isn’t without risks, but Malaysian banks have shown they can manage through uncertainty. With buffers in place and asset quality still holding up, we continue to monitor the sector closely. For investors watching for stable income, moderate growth, and potential dividend upside, the opportunities here may still be worth a look.
Disclaimer: Hailey Chung, Manager of Content at ProsperUs, does not own shares of any companies mentioned.
