Malaysia’s household debt-to-GDP ratio falls to 89% as at end-2021 from a record 93.2% a year ago

Bloomberg filepix for illustration purpose only

Bloomberg filepix for illustration purpose only

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KUALA LUMPUR (March 30): Malaysia’s household debt-to-Gross Domestic Product (GDP) ratio fell to 89% as at December 2021 from 89.6% in June 2021, according to Bank Negara Malaysia (BNM) in its Financial Stability Review for the second half of 2021, released on Wednesday (March 30).

It is also to be noted that a year prior, the nation’s household debt-to-GDP ratio had hit a record high of 93.2%.

BNM said the lower ratio as at end 2021 was mainly on the back of stronger nominal GDP growth, but added that it remained on the higher end when compared [to] regional economies — Singapore (69.7%); Indonesia (17.2%; Philippines (9.9%).

“Household debt grew at a slower pace of 4.1% (June 2021: 5.5%) year-on-year (y-o-y) as at December 2021 due to the reimposition of containment measures in the third quarter. 

“The growth in debt was primarily driven by housing loans as households took advantage of incentives under the Home Ownership campaign which ended on Dec 31, 2021,” it said.

Personal financing registered and outstanding credit card debt recorded declines of 0.3% and 1.3% respectively, in line with lower discretionary spending during periods of stricter containment measures, BNM said. 

Meanwhile, BNM said bank lending to households was sustained with 4.3% y-o-y growth in the second half of 2021, with most (71%) to borrowers earning more than RM5,000.

The central bank noted that lending standards remained sound with median Debt Service Ratios (DSRs) of newly-approved and outstanding loans maintained at 44% and 35% respectively.

“Around two-thirds of new loans approved in 2021 had DSRs below 60%, little changed from the share before the pandemic. Overall, the share of borrowers with DSRs exceeding 60% has also remained stable at around a quarter of total household borrowers,” BNM said. 

However, it noted that the bulk (67%) of these credit exposures with DSRs exceeding 60% are held by borrowers earning more than RM5,000 per month, who typically have larger buffers to sustain loan repayments in the event of financial shocks.

“Most of these loan accounts continue to be performing with impairment levels among these borrowers remaining low at 0.7%.

“Forward-looking indicators such as the share of loans classified by banks to be higher of risk for this segment, however, point to an expected increase in impairments largely in line with trends observed in overall household loans,” it noted.

Meanwhile, BNM highlighted that take-up of repayment assistance rose sharply in the second half of 2021 to 30% of household loan accounts or 35.7% of outstanding household loan exposures. 

It added that more borrowers — across all income groups — have opted for repayment assistance under the PEMULIH (National People’s Well-Being and Economic Recovery) package, given the flexible enrolment criteria which also extended assistance to those not already experiencing income loss or reductions.

“Borrowers earning less than RM5,000 per month remained the main beneficiaries of repayment assistance (60% of new accounts under repayment assistance between July and December 2021),” it added.  

Read more stories from the BNM Annual Report 2021 here.

Jenny Ng