THE effects of Bank Negara Malaysia’s measures to slow credit growth and contain rising household debt continue to be seen in the latest debt figures.

According to the central bank’s Financial Stability and Payment Systems Report published last week, growth in household debt has moderated over the past two years to RM940.4 billion as at end-2014, a 9.9% increase from 2013.

Bank Negara notes that this was the slowest growth since its peak in 2010, underpinned by the continued decline in personal financing by non-bank lenders.

“This was consistent with improved assessments by banks and non-bank financial institutions of the ability of borrowers to take on additional debt,” it says.

“The healthy aggregate balance sheet of households has continued to lend support to the overall debt-servicing capacity amid stable employment and income conditions.”

The household debt-to-gross domestic product (GDP) ratio rose marginally to 87.9% in 2014 from 86.7% in 2013, and Bank Negara expects it to moderate going forward.

The central bank points out that the quality of new loans for individuals has improved.

“For borrowers with monthly earnings of RM3,000 and below, the share of new loans, based on the number of new accounts, with a DSR of less than 60% was higher at 91.8% in 2014, compared with 85.9% in July 2013. The share of new loans with a DSR of less than 40% remained stable at 58%,” it says.

The debt-service ratio measures the use of one’s average monthly disposable income to service his or her loans. In 2013, the debt-service ratio of households in the country stood at 43.5%, which means that less than half of their disposable income was used to service their loans.

However, this is still high as 30% is generally viewed as an acceptable level. Anything higher than that would leave households at greater risk of being unable to service their loans, especially in the event of unexpected changes to income or expenditure.

According to Bank Negara, personal financing growth has fallen sharply from its peak of over 20% in 2011. Personal loan growth halved to 4.6% in 2014 from 10.2% in 2013, owing largely to property cooling measures and tighter lending conditions.

In fact, new household borrowings were also of better quality, with about 80% of new loans, based on the number of new accounts, having a DSR of less than 60%. Of that, half had a DSR of less than 40%.

As a result of the stronger performance of the economy last year, the household debt-to-GDP ratio rose marginally to 87.9% from 86.7% in 2013.

The central bank points out that although household debt may be high, the financial system is well buffered, as it is backed by high levels of financial assets, including bank deposits and investments.

“In 2014, aggregate financial assets rose RM110 billion, against an increase of RM84.5 billion in debts,” it says, adding that the aggregate household financial asset-to-debt ratio has been maintained at more than two times over the past three years.

Last year, deposits and deposit-like instruments, which represent 42% of household financial assets, made up 57% of the increase in financial assets.

“The high composition of such assets provides households with a comfortable buffer against unexpected changes in income or expenditure.

“Although the value of investments in equities and unit trusts was slightly lower, reflecting developments in the equity market, such assets accounted for about a fifth of household financial assets,” Bank Negara says, adding that collectively, 64% of household financial assets were readily available, if needed, for households to meet higher financial outlays.

This article first appeared in The Edge Malaysia Weekly, on March 16 - 22, 2015.

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