Bank approvals for new loans grew only 2.7% in May compared with the same month last year, a big drop from the 14.6% growth in April. These figures come from Bank Negara Malaysia (BNM) banking data, analysed by Hong Leong Investment Bank (HLIB) Research. Approvals for household loans, which cover homes, cars, personal financing, and credit cards, fell 5.2%.

Fewer people applied for loans too. Applications dropped 2.8% in May after growing 18.4% in April, so part of the slowdown came from fewer people asking to borrow. 

Even so, when applications and approvals fall at the same time, it means borrowing is getting harder from both sides. If you plan to apply for a home loan or a credit card in the next few months, this change affects you.

Loans And Savings All Slowed In May

The slowdown appeared in almost every type of loan. Households applied for fewer home loans, and less personal financing and credit cards. Companies also borrowed less, with business loan applications falling 4.3%. Business approvals still grew, but at a slower 8.8% compared with 15.0% in April.

The money banks paid out after approving loans, called loan disbursements, grew only 1.6% compared with 10.4% the month before. The total of all loans in the country still grew 5.7%, because loans given out in the past keep adding to the total. Behind that number, though, the flow of new loans is slowing.

Savings are not keeping up either. Money kept by households in banks grew only 1.8% compared with last year, and it fell 0.4% from April. At the same time, household borrowing kept growing at 5.2%. As a group, Malaysians are adding debt faster than they are adding savings, which leaves a smaller safety net when bills go up.

Banks Are Preparing For Higher Living Costs

Banks are being careful because life is getting more expensive. Prices rose 2% in May, partly because of an electricity surcharge and costlier vegetables, and diesel reached RM5.92 per litre in April before coming down. When fuel, electricity, and food take up more of a person’s salary, there is less money left each month to repay loans.

Banks want to avoid lending to people who may struggle later. Research firms that follow the banking sector, including HLIB, see the drop in approvals as a sign that banks are tightening, because they expect higher living costs to make repayment harder in the second half of 2026. Right now, only 1.4% of all loans in the country have missed payments, and banks want to keep that number low. Approving fewer risky borrowers now protects banks from having to chase unpaid loans later.

Banks still look at your income, your existing debts, and your record of paying on time, but they now apply those checks more strictly. An application close to the limit, which might have passed a few months ago, has a higher chance of being rejected.

A Stronger Application Works Better Than Waiting

Loan prices are not going down soon. BNM kept the Overnight Policy Rate (OPR) at 2.75% at its May meeting, and HLIB expects no change for the rest of 2026. The OPR affects how expensive a loan is, not whether you get approved. Approval depends on whether the bank believes you can repay, so waiting six months for a cheaper loan will not help if rates stay the same and approvals keep tightening.

Since banks are worried about your ability to repay, the best move is to show them you can. Paying down a credit card balance before you apply lowers your debt service ratio, which is how banks compare your monthly debt payments with your income. Clearing missed payments in your CCRIS record helps too, because banks study your last 12 months of payment history. Saving steadily for a few months also helps, because it shows you can handle higher bills without missing payments.

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