Malaysia’s JSSEZ will be attractive, given its myriad tax perks and its strategic location, supporting the region’s status as a supply-chain hub 

IF SUPPLY chains shift to South-East Asia from China due to tariff differentials, Singapore and Malaysia banks might have an edge, according to Bloomberg Intelligence (BI). 

DBS Bank Ltd, the largest bank asset-wise in Singapore as well as ASEAN, is well-placed to compete for cross-border and investment-banking transactions with a big Greater China business making up 24% of revenue, a strong balance sheet and access to US dollar funding at a 39% deposit mix. 

“Malaysia’s Johor-Singapore Special Economic Zone (JSSEZ) could become more attractive, given its myriad tax perks and its strategic location, supporting the region’s status as a supply-chain hub. 

“With 55% revenue from Singapore and Malaysia, United Overseas Bank Ltd is ideally situated to win project-finance deals in the SEZ — alongside home-grown corporate lenders Malayan Banking Bhd and CIMB Group Holdings Bhd — supporting 5%-7% loan-growth goals and fee-income generation ahead of the central bank’s pending policy rate pivot,” the report said. 

At the same time, it noted that Singapore banks appeared less vulnerable to US tariffs than South-East Asian rivals, despite shares falling 18% the week tariffs were announced, as supply-chain shifts are set to promote cross-border business. 

Thai banks could be hardest hit among the region’s major markets, with an influx of cheap products from China likely to compound bad-debt stress, it added. 

In a report released on April 10, RHB Investment Bank Bhd (RHIB) talked about dark clouds gathering in the banking sector, with the US tariff policy decision a dampener to macroeconomic growth. 

“The recent US tariff decision, assuming no meaningful de-escalation anytime soon, will likely be a dampener for the banks,” it said. 

Already, it noted that RHB Economics has revised Malaysia’s GDP growth forecast to 4.5% from 5% for 2025, with the balance of risk leaning towards a 4% growth should tariff and trade tensions escalate further. For now, the 2025 Overnight Policy Rate (OPR) expectation has been kept at 3%, but there is a possibility of a 25-basis point cut in the second half of 2025 (2H25) should the GDP growth fall below the officially projected range of 4.5%-5.5%. 

As a proxy to the economy, the report noted that Malaysia banks will also likely be impacted by a slower macroeconomic environment. 

For instance, it said the slower GDP growth is expected to translate to a slowdown in non-household loan demand, investment — as well as working capital loans. 

“Banks may also curb growth due to a reduction in risk appetite. Loans to the household segment, though, are expected to be more resilient, backed by healthy mortgage loan pipelines. 

“However, a moderation in loans growth may not be all that bad as it will help ease pressure on deposit gathering given the system loan-to-deposit ratio has been trending close to the upper end of its historical range. Furthermore, should expectations of an OPR cut build up, banks may pre-empt and cut deposit rates ahead of Bank Negara Malaysia’s (BNM) actual move,” it said. 

On the whole, RHIB said while Malaysia banks’ operating income growth may slow down during recessionary periods, overall operating income tends to be fairly resilient. 

“Instead, the key swing factor to sector earnings has been loan impairments. At this stage and barring a significant decline in GDP, we believe the risk of a spike in loan impairments can be contained. A number of banks continue to hold on to sizeable overlay buffers that can be utilised to help cushion against a deterioration in asset quality,” it said. — TMR