Household debt to GDP ratio falls to 88.4%

PETALING JAYA: Malaysia’s total household debt to gross domestic product (GDP) ratio last year contracted for the first time since 2010, according to Bank Negara’s Financial Stability and Payment Systems Report 2016.
As at the end of 2016, the total household debt to GDP ratio fell to 88.4% from 89.1% in 2015, despite a slowdown in economic growth to 4.2%, which potentially marks a turning point for adjustments in household leverage.
Growth in total household debt, which stood at RM1.09 trillion, moderated further to 5.4% in 2016 versus 7.3% in 2015, the slowest pace since 2010.
Both household financial assets and liquid financial assets remained high on aggregate, accounting for 2.1 and 1.4 times of debt respectively.
In value terms, household financial assets increased RM113.4 billion against an increase of RM55.6 billion in debt.
The report highlighted that the capacity of households to service debt remains firm, with average income registering a modest 5.5% growth.
In 2016, about 41% of borrowers with newly approved loans had a debt service ratio of less than 40%.
However, households with monthly earnings of up to RM3,000 continue to be more vulnerable due to low financial buffers and higher leverage.
The report noted that total exposures of Malaysian financial institutions to the domestic property market expanded 8% in 2016 to RM793.9 billion, accounting for 26.7% of total financial system assets as at end-2016.
The level of total impaired loans, however, increased 6.3% compared with the previous year, mainly from borrowings for investment purchases of property and personal financing.