Industrial training report: SSRV (M) Sdn Bhd. Special project: Macroeconomic factors affecting bank lending in Malaysia

This research delves into how different macroeconomic factors impact bank lending in Malaysia, spanning the years from 1985 to 2023. Bank lending is essential for economic growth, providing funds that individuals and businesses need for various purposes. The study specifically looks at how interest rates, GDP growth, inflation, and unemployment rates shape the lending practices of Malaysian banks. The banking sector is a cornerstone of Malaysia's economic progress. During times of economic growth, banks are more inclined to lend due to increased demand and better creditworthiness among borrowers. However, during economic downturns, banks become more cautious and scale back their lending due to higher risks. Understanding these patterns is crucial for maintaining a robust banking sector.The research uses data from credible sources like Bank Negara Malaysia and the World Bank. By applying sophisticated econometric methods, including the Dynamic Ordinary Least Squares (DOLS) technique, the study provides clear insights into the long-term effects of various macroeconomic factors on bank lending. Key findings show that lower interest rates generally make borrowing cheaper, encouraging more people and businesses to take out loans. In contrast, higher interest rates make borrowing more expensive, leading to a decline in lending. Interestingly, the study finds that higher GDP growth actually correlates with reduced bank lending, possibly because businesses and individuals have better cash flows and don’t need as much credit. Inflation also plays a significant role. High inflation reduces the purchasing power of borrowers and creates economic uncertainty, both of which discourage borrowing. Similarly, higher unemployment rates lead to less lending, as banks become wary of loan defaults when more people are out of work. In summary, the study highlights the complex interplay between macroeconomic conditions and bank lending in Malaysia. It underscores the need for stable economic policies to foster a conducive lending environment. Policymakers should aim to control inflation and support sustainable economic growth, while banks should improve their risk management practices and offer innovative loan products to adapt to changing economic landscapes. Future research might look into more specific factors or compare Malaysia’s banking dynamics with other countries in the region to provide even deeper insights.