Malaysia’s tech push for digital banking

Digital banks in Malaysia have been accelerating upgrades to its systems, a move expected to attract new users and increase profits.

During the tail end of the global pandemic in 2022, Malaysia came up with the Financial Sector Blueprint 2022-2026 to prepare the banking sector in keeping up with the rising usage of digital banking services, and it has been bearing fruit. A Malaysian credit rating system, RAM Ratings, assessed that the country’s banking industry remains stable and positive in 2026 despite global geopolitical issues such as tensions in the Middle East and continuing trade disruptions. S&P Global Ratings also kept Malaysia’s sovereign credit rating at A- with a stable outlook in September 2025.

While digital banking is often undervalued because it does not fit traditional banking models, the current landscape of Malaysia’s traditional and digital banking channels within the financial sector is not a zero-sum game. Rather, both are jointly pushing the boundaries to improve service delivery for clients in Malaysia.

Performance of conventional banking

Bank Negara Malaysia (BNM), the country’s central bank, said in its Financial Stability Review for the first half of 2025 that the domestic banking sector has strong liquidity and funding positions to continue to facilitate financial intermediation. However, the recent strength of the sector is not due to domestic capital; instead, it is heavily influenced by global capital flows. Therefore, the sector’s performance reflects global investor confidence in the stability of Malaysia’s banking system.

In mid-January, the financial services market gained MYR 365.9 million (USD 93.2 million) in net foreign fund inflows, with banks’ liquidity and asset quality remaining strong. Additionally, the BNM saw that the banking system had excess capital buffers amounting to MYR 139.6 billion (USD 35.6 billion). Theoretically, this makes Malaysia’s banking system well-capitalised to support strong and stable expansion.

Graph 1 shows that demand deposits held by Malaysian banks have increased by 14.39 per cent from MYR 509 billion (USD 129.7 billion) in January 2024 to MYR 582 billion (USD 148.3 billion) in January 2026 and further rose to MYR 587 billion (USD 148.5 billion) by February. Demand deposits, or easily accessible cash, surged after the BNM’s 25-point rate cut to 2.75 per cent in July 2025, which has also supported growth in private consumption. Government data on private final consumption expenditure posted a 5.3 per cent growth in the final quarter of 2025, driven by household spending and increased demand for accommodation and food and beverage services. This is also an indication that domestic consumers have more purchasing power, which bodes well for overall GDP growth, and captures public trust in the domestic banking system.

The era of digital banks

The conventional banking sector has utilized its massive balance sheet as a stable foundation. Despite this, there remains a significant appetite among Malaysian consumers for digital banking. In 2022, five digital bank licenses had been granted by Malaysia’s Minister of Finance, paving the way for commercial operations. GX Bank started in November 2023, while the most recent launch was for Ryt Bank in August 2025.

Since then, the rise of digital banks has had a significant impact on Malaysia’s economic landscape. This includes the fact that digital banks are providing a more convenient way for individuals and businesses to carry out their financial transactions. By the end of 2025, BNM observed that these five digital banks had served 2.4 million customers and held MYR 4.2 billion (USD 1.04 billion) in total deposits. One might say that the amount is small compared to deposits held by brick-and-mortar lenders, however, we also see this as a clear indication of the rapidly rising popularity of digital banking in the past two years.  

Amongst the five digital banks, GX Bank leads in total assets at MYR 1.58 billion (USD 390 million), as seen in Graph 2. Naturally, the digital bank industry would still incur a net loss for several years as they need to invest heavily on technology, digital infrastructure, operations, and marketing before breaking even or becoming profitable. Looking back at GX Bank, its net loss stood at MYR 119.9 million (USD 29.6 million) but is expected to break even by 2027. AEON Bank also has the same story, with share loss worth MYR 19.62 million (USD 4.9 million). Despite this, we maintain that this industry has a strong potential for future profitability.

A new dawn

Small and medium enterprises (SMEs) also benefit greatly from digital banking as numerous providers offer discounts and incentives to facilitate credit lines. These SMEs are important to economic growth since they contribute in a big way to Malaysia’s GDP, and simplified access to loans. In 2024, SME output totalled MYR 652.4 billion (USD 161.6 billion) or 39.5 per cent of Malaysia’s economy.

The main charm of digital banking is its move away from outdated banking processes. One can open an account, deposit money, and obtain a credit line within minutes without leaving home. Easier access to business credit improves operational efficiency and covers overhead costs when cash flow is tight. Even though SMEs remain underserved and digital banks are incurring losses currently, we believe this alternative will expand swiftly. Digital banks exist in response to the thick bureaucracy of traditional banks. One example is GX Bank, a joint venture of ride-hailing service Grab Holdings and Singapore Telecommunications, which plans to offer loans for purchases of used cars – something traditional banks typically do not cover.

Another interesting observation is the application of artificial intelligence (AI) in digital banking to deliver quick services to banking customers, significantly outpacing conventional banks. Ryt Bank is the world’s first AI-powered bank, with AI integrations promising smarter services and succinct financial information, such as summaries of research reports and insights from financial news. This creates an opportunity for investors to invest in AI technology for digital banking, which are two exciting sectors with strong potential returns.

This original article has been produced in-house for Lundgreen’s Investor Insights by on-the-ground contributors of the region. The insight provided is informed with accurate data from reliable sources and has gone through various processes to ensure that the information upholds the integrity and values of the Lundgreen’s brand.