Subdued activity in the housing market in recent years, as well as weaker demand for high-priced properties are contributing towards a higher supply of affordable housing. Meanwhile, overall loan approval rates for property purchases declined slightly to 71.3% in 2018.
27 March, KUALA LUMPUR – Malaysia’s household debt-to-gross domestic product declined to 83% last year from 84.3% in 2017 supported by macro prudential measures in strengthening household resilience.
Bank Negara Malaysia (BNM) said the growth in household debt in 2018 slowed further to 4.7%, compared with 4.9% in 2017 and 5.6% in 2016. This is mainly driven by slower growth in loans extended by non-bank financial institutions.
“The quality of household debt remained intact, with risks largely limited to loans for the purchase of higher-valued properties and personal financing,” the central bank said in it’s Financial Stability and Payment Systems Report 2018 released today.
It said residential property loans remained the primary contributor to household debt growth, although lending was curtailed by reduced housing affordability, particularly among low to middle-income households. Overall loan approval rates for property purchases trended slightly lower at 71.3% in 2018.
Meanwhile, loans for the purchase of securities registered strong growth, bolstered by the sustained performance of Amanah Saham Nasional Bhd (ASNB) funds which continued to offer attractive returns.
At the aggregate level, households continued to be well-placed to manage their debt repayments, supported by continued income and employment growth.
“The ratio of household assets to debt remained high at four times. Household financial assets expanded at a slower rate in 2018 but continued to outpace the growth of debt.
The slower expansion of financial assets reflected lower valuations of equity holdings and unit trust funds, amid the weaker equity market performance in 2018,” BNM said.
In the property market, it noted that growth in house prices continued to ease amid weaker demand for higher-priced properties, which remained unaffordable for most buyers as well as less exuberant activity in the housing market in recent years.
This is contributing to adjustments in housing supply towards more affordable segments, it said.
Meanwhile, businesses recorded a slight deterioration in financial performance in 2018, as firms in the oil and gas-related, real estate and construction sectors continued to face headwinds, but this would not have a significant impact on domestic financial stability.
“Factors supporting the lower risk profile of corporate external borrowings, namely the substantial share of borrowings which are of a longer-term duration, hedged against currency risks and represented by inter-company loans and trade credits, further limits risks to broader financial stability,” BNM said.
It also said the multi-year solvency stress tests on banks and insurers continued to affirm the resilience of the institutions under simulated scenarios of severe macroeconomic and financial strains.
Banks’ and insurers’ capital positions remained above the regulatory minimum throughout the stress periods.
For 2019, risks to domestic financial stability are assessed to remain broadly stable across the different sectors and risk areas.
BNM continues to maintain close vigilance over the pace and level of debt accumulation and risk taking behaviour to prevent a build-up of vulnerabilities that could expose the financial system to future risks.