Economic Report 2014/2015: Household debt grows at slowest pace since 2010

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MALAYSIA’s household debt grew at the slowest pace since 2010.

The Economic Report 2014/2015 shows that household borrowing increased by 9.9% to RM904.3 billion as at June 30, from RM855.9 billion at end-2013. This represented 86.7% of nominal GDP as at June 2014.

The total household loans outstanding expanded 11.1% to RM732.9 billion, compared to RM693 billion at end-2013. It accounted for 57.6% of total loans outstanding in the banking system as at end-July 2014.

However, loan applications by the household sector eased by 5.4% to RM252.1 billion between January and July 2014, compared to RM266.5 billion the same period last year. Meanwhile, loan approvals and disbursements grew 1.6% and 3% to RM140.1 billion and RM176.6 billion respectively.

During the first seven months of 2014, the largest chunk of loans disbursed to households was for consumption credit (42.1% or RM74.5 billion), followed by loans for purchase of residential properties (26.2% or RM46.2 billion).

“The risks to domestic financial stability, however, remained well-contained, supported by more than sufficient financial assets of households, stable labour market conditions and steady income growth,” says the report.

According to the report, household financial assets grew 8.1% to RM1,996.9 billion as at end-July 2014, versus RM1,902.6 billion as at end-2013. These financial assets accounted for more than twice the household debt.

The composition of both financial assets and debts was broadly unchanged with 41.6% of the total financial assets held in the form of deposits and deposit-like instruments. The ratio of deposits and deposit-like instruments to household debt remained stable at 91.8%.

“The availability of these liquid assets provides households with some flexibility to temporarily weather any income shocks, thus safeguarding their debt repayment capacity,” the report adds.

As at end-July 2014, the net impaired household loans ratio improved slightly to 1.2% of total household loans in the banking system, compared to 1.3% at end-2013.

From January to July 2014, credit card utilisation grew 3.5% in volume to 200.2 million transactions and 5.9% in value to RM60.2 billion, as opposed to 193.4 million transactions worth RM56.9 billion last year.

Purchases local and abroad constituted 97.7% of credit card transactions, while the balance was for cash advances. Credit card outstanding balance rose 2.5% to RM34.4 billion as at end-July 2014, lower than RM35.5 billion at end-2013.

Meanwhile, during the same period, credit card outstanding balance as a share of total household loans and total outstanding loans in the banking system contracted from 5.1% to 4.7% and 2.9% to 2.7% respectively, compared to end-July 2013.

As at end-July 2014, the impaired loans ratio of credit card improved slightly to 1.2% from 1.3% at end-July 2013.

This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.