This article first appeared in The Edge Financial Daily on September 19, 2019
KUALA LUMPUR: The increased accessibility to various loan assistance schemes introduced in recent years has driven those earning less than RM3,000 a month to borrow more from banks, according to Bank Negara Malaysia (BNM).
In its Financial Stability Review for the first half of 2019, the central bank said default incidents by housing loan borrowers have also increased in recent periods, indicating that more households may be experiencing financial stress.
According to the review, financial stress has been more prevalent among borrowers who obtained housing loans for properties priced above RM500,000; or those who experience greater variability in their monthly income.
BNM noted that the share of household debt held by borrowers earning less than RM3,000 per month has continued to decline over the years.
“Despite greater constraints on their ability to borrow, the leverage of households earning less than RM3,000 per month has continued to rise due to housing loans which have been made more accessible under various loan assistance schemes introduced in recent years,” the central bank said.
This group of borrowers remains susceptible to financial distress given their limited financial buffers to weather potential shocks.
On the lenders, exposures of banks and non-bank financial institutions to the more vulnerable segment (borrowers earning less than RM3,000 per month) have continued to decline. Nonetheless, risks remain elevated among these borrowers.
Housing loans accounted for 32% or RM551.94 billion of the total outstanding loans of RM1.73 trillion in the banking system as at July 30, according to BNM’s monthly data.
Nonetheless, the central bank yesterday said risks to the financial system remain low as exposures from these borrowers accounted for only 6.2% of total household lending, and with only 0.9% of such loans being classified by banks and development financial institutions as impaired as at end-June.
Based on enrolments into the Credit Counselling and Debt Management Agency’s debt management programme, the number of individuals seeking help increased at a slower pace, according to the review.
“Risks to financial stability, however, remain largely contained given the low exposures of banks to higher-risk borrowers as banks continued to maintain sound lending practices,” said BNM.
BNM said the debt-servicing capacity of households generally remained intact, as reflected in the low and stable impairment and delinquency ratios.
“For several years now, households’ holdings of financial assets have expanded at a faster pace than that of debt. This continued into 2019 with household savings in deposits and deposit-like instruments increasing more than the decline in households’ equity investments following the weak equity market performance,” it said.
At the aggregate level, BNM said total household assets exceeded debt by 4.1 times (2018: 4.1 times).
“Excluding housing wealth, household financial assets stood at 2.2 times of debt. Two-thirds of these financial assets are in the form of liquid financial assets such as deposits and unit trust funds which can be drawn upon to meet households’ debt obligations and other financial commitments, if the need arises,” it said.
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