Analysts and industry observers said credit expansion would be sustained throughout the remaining months and much would be dependent, for example, on how fast the government's projects under the Economic Transformation Programme (ETP) kicks off, and the 10th Malaysia Plan.

Analysts are projecting loan growth this year to be in the region of 11 percent to 15 percent. The banking system's total loan growth for the first six months to June stood at about 7 percent unannualised.

OCBC Bank (M) Bhd economist Gundy Cahyadi said that although Malaysia's economic expansion would continue to mean a good year for the banking sector, its performance might not be as robust as witnessed in the first half of this year, especially in the first quarter, at which point both the return on assets and return on equity hit recent highs.

"The central bank's move to bring the SRR (statutory reserve requirement - interest free deposits banks have to keep with the central bank) back to the pre-crisis level will undeniably have an impact on banks' profitability, given its impact on liquidity. We are also seeing some moderation starting to finally hit mortgage growth, which is typically one of the more profitable segments of commercial bank lending,'' he noted.

Gundy said the unpredictable global market conditions would weigh on the banking sector even if real economic expansion soldiers on.

Bank Negara recently raised the SRR to 4 percent from 3 percent to mop up excess liquidity in the financial system.

Analysts and economists view the 100 basis point increase in SRR as normalising it to the SRR in the pre-2009 financial crisis level of 4 percent. It was maintained at this level from September 1998 to November 2008.

RAM Ratings head of financial institution ratings Promod Dass said the outlook on the Malaysian banking sector was still stable. He said the industry parameters which the rating agency was keeping close tabs on like asset quality, capitalisation as well as liquidity and funding positions were still within expectations.

RAM Ratings, he added, was projecting an 11 percent loan growth and an industry gross impaired-loan ratio of around 3 percent for 2011. Dass said, however, the rating agency remained vigilant over the potential weaker global economic growth stemming from the on-going sovereign debt saga in Europe and the US$2.4 trillion cut in US public spending following the recent deal approved by the US Congress to raise the debt ceiling.