Banks' loan growth remained steady, but household demand subdued in July

KUALA LUMPUR: Malaysia's banking sector loan growth remained steady in July, driven by a 7.5% year-on-year increase in business loans, according to Hong Leong Investment Bank Bhd (HLIB). While business loan applications and approvals surged by 37.7% and 51.9% year-on-year respectively, household demand remained subdued with applications rising by just 1.7% and approvals falling 2.6% YoY.

Disbursement growth strengthened to 7.6% YoY, but repayment growth moderated significantly to 6.0%. HLIB's asset quality remained resilient with gross impaired loans holding steady at 1.43% in July for the third consecutive month. Meanwhile, Public Investment Bank Bhd noted that the industry's average interest spread narrowed year-on-year but improved sequentially.

The industry average interest spread has narrowed to 2.35% from 2.37% a year ago, driven by a lower average lending rate of 4.55% and 12-month fixed deposit rates of 2.20%. PublicInvest expects net interest margin to remain broadly stable as easing funding costs offset continued yield compression. HLIB maintained its Neutral recommendation pending a further review in its upcoming second-quarter calendar year 2026 report card.