28 March, KUALA LUMPUR – Malaysia’s household debt growth moderated over the past seven consecutive years from a peak of 14.2 per cent in 2010 to 4.9 per cent as at the end of 2017.
Bank Negara Malaysia (BNM) said the decline in debt growth resulted from a series of measures it implemented together with the government since 2010 and coupled with strengthened lending practices by both banks and major non-bank financial institutions (NBFIS).
In its Financial Stability and Payment Systems Report 2017 released here today, the central bank said, risks associated with the accumulation of unsecured borrowings had receded considerably with the growth of personal loans moderating from a peak of 25.2 per cent in 2008 to 2.5 per cent in 2017.
“As a result, the ratio of household debt-to-gross domestic product (GDP) declined to 84.3 per cent last year, from its peak of 89 per cent in 2015.
“Excluding NBFIs, Malaysia’s household debt-to-GDP ratio stood at 69.3 per cent of GDP,” it said.
BNM said despite these positive developments it remained vigilant towards attendant risks from household debt as research has shown that the negative long-run effects on economic growth tended to intensify as the household debt-to-GDP ratio exceeded 80 per cent.
Meanwhile, the central bank said, household financial assets and liquid financial assets (LFAs) were 2.1 and 1.5 times of debt, respectively.
Based on a conservative assumption, an individual borrower would only have sufficient financial buffers if their LFAs were more than total debt.
“The bulk (69 per cent) of Malaysian household financial assets are made up of LFAs, of which more than two-thirds are in deposits and unit trust funds.
“Across income groups, LFAs are mostly held by individuals with monthly earnings of more than RM5,000 (71 per cent of total LFAs) while individuals earning less than RM3,000 per month held only nine per cent of total households’ LFAs,” BNM said.
In assessing borrowers’ debt repayment capacity and financial resilience under stressed scenarios, BNM said, the results of the overall stress tests revealed that borrowers were most affected by a decline in total income.
It added that the impact of higher cost of living was lower compared to an income shock and in contrast to the other shocks, borrowers were largely unaffected by a simulated 50 basis points increase in the lending rate.
On another development, BNM said, banks continued to apply robust risk management practices in managing credit exposures to the household sector.
“Risks to financial stability from banks’ exposures to vulnerable borrowers are limited due to strong capital buffers. The existing macroprudential measures and strengthened risk management practices of banks further mitigate potential risks,” it said.