Bad debts at Malaysian banks could rise this year and in 2026, from potential credit risks amid higher US tariffs, CGS International flagged on Thursday.
Gross impaired loans — debts deemed unrecoverable as a percentage of total loans — could rise by 5.6% in 2025, before picking up to 7% in 2026 for banks under coverage, according to the research house’s estimates. That’s a reversal from the decline in bad debts over the past four years.
“We believe the higher tariffs imposed by the US on Malaysian exports could reduce business volumes and revenue of Malaysian companies that are reliant on the US market, weakening their debt-servicing capabilities and sparking concerns of increased credit risks for Malaysian banks,” the house said.
US President Donald Trump has suggested a minimum 15% and as high as 50% for his so-called reciprocal tariff rates ahead of an Aug 1 deadline, according to overnight news reports.
Earlier this month, the US threatened to impose a blanket 25% import tariff on all Malaysian goods.
A 10% jump in gross impaired loans for 2026 will reduce the year’s total net profit of banks under coverage by 3.2%, according to a stress test conducted by CGS International.
Hong Leong Bank Bhd (KL:HLBBANK) would be least impacted with its net profit down only 1%, while Affin Bank Bhd (KL:AFFIN) would be heaviest hit with a potential earnings decline of 10.9%, the research house noted.
However, the house does not expect any significant increases of more than 10% in gross impaired loans for 2025 and 2026, due to banks’ tight control over asset quality under the supervision of Bank Negara Malaysia.
Banks could also make proactive moves to offer repayment assistance to borrowers affected, while they were sitting on massive management overlays totalling RM4.36 billion at the end of March, the house noted.
In the event that banks need to provide for 50% of the new gross impaired loans, the additional provisions will be able to cover up to 37.9% of the increase in 2026, CGS International added.
Source: theedgemalaysia