Can nature risks become a lending opportunity for Malaysian banks?

About $200b of Malaysian bank loans depend on water, soil, and other natural resources.

Malaysia’s banks risk losses on more than half of their commercial loans if water supplies, flood protection, and other natural systems deteriorate, but financing businesses to protect or restore them could create another source of lending growth.

About 54% or $200.28b of Malaysian banks’ commercial loans depend heavily on natural systems such as water supplies, flood protection, and healthy soil, UOB Kay Hian Holdings Ltd. (UOBKH) said in a September report, citing Bank Negara Malaysia, World Bank, and United Nations Development Programme data.

Deteriorating water supply and purification, rainfall regulation, flood mitigation, and soil retention could disrupt businesses, cut productivity, and increase operating or repair costs, Philip Wong and Keith Wee, analysts at UOBKH, said in the report.

“Weaker borrower cash flows or collateral values can increase the probability of default or loss given a default, while greater uncertainty may lead banks to tighten underwriting standards, reprice risk or reduce exposure to vulnerable sectors,” they said.

Those risks could also create lending opportunities as companies spend on sustainable agriculture, water management, and ecosystem restoration.

CIMB Group Holdings Berhad has identified opportunities in water security, mangrove and blue carbon restoration, and regenerative land management, according to the report.

Bank Islam Malaysia Berhad sees opportunities in sustainable agriculture, water management, and infrastructure designed to limit damage to biodiversity.

“Banks that build expertise earlier could therefore improve risk selection while also capturing financing demand from customers adapting to tighter environmental requirements,” UOBKH said.

Interest in financing companies shifting towards more sustainable operations is also increasing beyond Malaysia.

An April 2026 Hong Kong Academy of Finance survey of 1,050 respondents across 18 markets found that 60% were already involved in or exploring such financing.

Some 91% of respondents in the Asia-Pacific region expect activity to remain stable or grow.

Questions to ponder:

• How vulnerable are Malaysian banks to losses from borrowers that depend on natural-based services?
• Which environmental projects could attract more bank financing?
• How can banks assess whether environmental projects are commercially viable?