By Khairie Hisyam
The growth of household indebtedness in Malaysia moderated further in 2014 as annual growth of personal loans nearly halved from the previous year.
In Bank Negara Malaysia’s Financial Stability and Payment Systems Report 2014, the central bank said aggregate household debt grew by 9.9% to RM940.4 billion as of end-2014, continuing its moderating trend over the past two years.
Underlying the moderating trend of overall household debt is the continuing decline in annual growth rates of several loan types. Among others these include personal financing, which saw its annual change percentage nearly halved from the previous year, as well as financing for vehicle purchases which had been seeing steadily declining annual growth rate since 2012.
“This was consistent with improved assessments by banks and NBFIs (non-banking financial institutions) of the ability of borrowers to take on additional debt,” said the central bank. “The healthy aggregate balance sheet of households has continued to lend support to overall debt servicing capacity amid stable employment and income conditions.”
Malaysia’s household debt situation, benchmarked in terms of debt to gross domestic product (GDP) ratio, had risen sharply since a recent low of 60.4% in 2008, hitting 81.1% in 2013. As a general rule a higher ratio indicates increased vulnerability of the economy to shocks.
That year Bank Negara introduced several measures to curb rising household debt, announcing in July that personal financing tenures will now be capped to ten years while property loans will now be capped to 35 years. In addition offering pre-approved financial products was also prohibited.
While the debt-to-GDP ratio continued rising to just under 90% in 2014 at 87.9%, the slowing rate of growth shows the measures to curb growing indebtedness of households are working, said Bank Negara governor Zeti Akhtar Aziz last November.
Higher debt quality
One encouraging development is rising quality in terms of new household borrowings, said Bank Negara.
Based on debt-service-ratio (DSR) levels, some 80% of new loans – measured in terms of new loan accounts — have a DSR of less than 60% for all outstanding debts while half have a DSR of less than 40%, said the central bank’s report released today.
As for borrowers with monthly earnings of RM3,000 and below, the share of new loans with DSR of less than 60% rose to 91.8% compared to 85.9% as of July 2013.
Similarly new loans by this category of borrowers with DSR of less than 40% remained stable at about 58%, said Bank Negara.
“This accords households with greater buffers and flexibility to weather financial challenges,” said the central bank. “Reflecting these developments as well as the stronger performance of the economy in 2014, the ratio of household debt-to-GDP rose only marginally, compared with earlier years, to 87.9% (2013: 86.7%).”
New debts decline
In addition the amount of new debt assumed by households is lower by RM3.8 billion in 2014 compared to the previous year, said Bank Negara.
According to the central bank’s report released today, borrowings continue to remain heavily concentrated in financing for property and financial assets. This reduces net exposure to households in an event of stress, it said further.
“Risks associated with the accumulation of unsecured household debt have continued to recede,” said Bank Negara. “New unsecured borrowings accounted for a substantially lower share of total new household debt for the year (2014: 8.6%; 2013: 16.5).”
Overall 2014 saw households accumulate an additional RM7.3 billion in outstanding credit card balances and personal financing, said Bank Negara. This accounts for less than 40% of the average annual increase in credit card and personal financing seen between 2010 and 2013.
Notably in 2014 NBFIs remain the largest provider of personal financing with nearly a 60% share of total personal financing to households, added the central bank, although new personal loans approved by NBFIs dipped both in terms of number and value terms – down 14% and 31.3% respectively from the previous year.
“The excessively high levels of personal financing extended in earlier periods – of up to RM300,000 under a single facility – have almost disappeared from the NBFI market as a result of more robust affordability assessments, aligned to the Bank (Bank Negara)’s responsible financing standards,” said Bank Negara.
Correspondingly the average financing amount disbursed by NBFIs last year dipped below the RM30,000 mark for a single facility, it added.
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