Banking Sector Faces Higher Loan Impairments

The banking sector recorded a slight increase in industry loan growth to 5.7% year-on-year (YoY) in January 2025, compared to 5.5% YoY in December 2024, driven by higher working capital loans and stronger non-household financing. Household loan growth remained stable, contributing to a 4.8% annualised YTD loan growth.

The banking sector

However, loan applications showed slower growth while loan approvals declined, reflecting mixed lending demand. Asset quality remained steady, though the gross impaired loans (GIL) ratio rose to 1.5% due to higher impairments, prompting banks to raise provisions.

The sector’s earnings growth is projected to moderate to 6.5% in 2025, with limited ROE expansion amid ongoing geopolitical uncertainties and trade protectionist measures.

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