• Households continue to demonstrate healthy debt-repayment capacity, supported by sound lending standards and favourable labour market conditions. Similarly, the debt-repayment capacity of businesses continues to be sustained, driven by proactive cost management strategies.
• Financial institutions remain resilient, underpinned by robust capital positions and ample liquidity buffers.
• Operational resilience and fraud prevention remain key priorities for financial institutions, ensuring continued trust and stability in the financial system.

Bank Negara Malaysia (BNM) released the Financial Stability Review for the First Half of 2025 (FSR 1H 2025) today.

Domestic financial markets remained orderly despite global volatility

Despite heightened global volatility, driven by US tariff developments, concerns over global growth and geopolitical tensions, Malaysia’s financial market conditions remained orderly. The Financial Market Stress Index (FMSI) peaked in May but has since moderated, reflecting stabilisation across all asset classes.

The ringgit appreciated by 6.1% against the US dollar between March and September 2025, driven largely by external developments. Malaysia’s favourable economic prospects, ongoing structural reforms and continued engagements with corporates are expected to provide ongoing support for the ringgit.

Business resilience sustained amid cost pressures

In the first half of 2025, business operations remained resilient, supported by resilient domestic demand and sustained economic activity. However, profitability was constrained by persistent cost pressures, particularly in sectors affected by higher labour and material costs. Despite these challenges, businesses maintained their financial strength. The median interest coverage ratio stood at 6.2 times, while the share of firms-at-risk remained stable at 24.4%.

The credit quality of business loans was sustained, with the impairment ratio unchanged at 3.1%. While a small segment of small and medium enterprises (SMEs) continued to face repayment challenges, signs of financial stress remained contained. The share of SME loans under repayment assistance programmes continued to decline, accounting for 4.1% of total SME loans and just 0.7% of total loans in the banking system and development financial institutions.

Looking ahead, the operating environment is expected to remain challenging in the second half of 2025. Nonetheless, moderating input prices and firms’ ongoing cost management strategies are expected to alleviate some of the pressures. Additionally, strong domestic demand and continued investment activity will remain as key pillars supporting business resilience.

Household resilience anchored by favourable economic and labour market conditions

While the household debt-to-GDP ratio edged slightly higher to 84.8%, borrowers’ debt-servicing capacity remained healthy, underpinned by banks’ prudent lending standards. Key indicators of debt repayment capacity remained sound, with the median debt service ratio (DSR) at 41% for newly approved loans and 33% for outstanding loans.

Overall, the quality of household borrowings remained sound, with the loan impairment ratio unchanged at 1.1%. The share of household loans under repayment assistance programmes continued to decline, reflecting sustained repayment behaviour. Despite ongoing cost-of-living pressures, signs of financial stress among household borrowers remained limited and contained, with no evidence of widespread deterioration in repayment trends.

Operational resilience and fraud prevention remain key priorities

Financial institutions continued to demonstrate strong operational resilience in the first half of 2025. In response to persistent cyber threats, institutions significantly enhanced their cybersecurity capabilities, enabling more effective threat detection, containment and response. These efforts have helped minimise operational disruptions and reinforce trust in the system.

BNM Deputy Governor Aznan Abdul Aziz said, ‘Fraud risks have increasingly shifted towards authorised scams involving social engineering tactics. In response, BNM and the financial industry have strengthened fraud detection measures and expanded public awareness initiatives. This includes the ongoing upgrade of the National Fraud Portal to enhance the tracing of suspicious transactions and better protect victims.’

The Real-time Electronic Transfer of Funds and Securities System (RENTAS) and major retail payment systems (RPS) maintained high levels of system availability throughout the first half of 2025, with no major operational or cyber incidents reported. As regional cross-border Quick Response (QR) payment connectivity continues to expand, BNM will further strengthen its oversight of cross-border payment arrangements. This will be achieved through close collaboration with relevant regulatory authorities to ensure continued resilience and security of these systems.

Financial institutions remained supportive of economic growth

Malaysia’s financial institutions continued to play a pivotal role in supporting  economic activity during the first half of 2025. As of end-June 2025, the banking system’s total capital ratio stood at 18.2%, with excess capital buffers of RM138.9 billion. Similarly, the insurance and takaful sector remained well-capitalised, recording an aggregate capital adequacy ratio of 223% and excess capital buffers of RM42 billion. These buffers ensure that financial institutions remain well-positioned to absorb unexpected losses while continuing to meet the financing and protection needs of households and businesses as economic activity expands.

The FSR 1H 2025 features two articles:

• Transition from KLIBOR to MYOR and MYOR-i
• Progress in Strengthening Senior Management Accountability through Responsibility Mapping

Publication:

• Financial Stability Review 1st Half 2025