PRIVATE consumption and investment activities continued to drive Malaysia's economy, which in the third quarter grew 5.6 per cent, putting it on track to chart full-year growth of 5.5-6 per cent. The country's gross domestic product (GDP) had grown 6.5 per cent in the second quarter, and in the nine months to September averaged 6.1 per cent.
Household debt - a sizeable 87 per cent of GDP - continued to inch up, albeit at a moderated pace of 10.4 per cent. The risk of loan delinquency remained low, however, as households showed a sustained capacity to service their debts; impaired loans made up 1.2 per cent of total household borrowings.
The quality of loans has improved since Bank Negara issued guidelines requiring banks and other credit institutions to abide by more stringent lending criteria. Bank Negara governor Zeti Akhtar Aziz, presenting the third-quarter report card on Friday, noted, for instance, that the debt service ratio of half the new borrowers since July had fallen to a more prudent level of 40 per cent or less. Comparative figures are unavailable as the central bank began compiling more comprehensive data only in July.
What is evident is that the screws have been tightened, especially on non-bank financial intermediaries, or the so-called "shadow banking sector".
Between 2010 and 2012, before the introduction of macro prudential measures, personal financing loans rose by more than 20 per cent a year as borrowers lapped up the easy credit; this has now moderated to 4.2 per cent a year, Ms Zeti said.
Meanwhile, the banks have remained accessible to businesses, with domestic borrowing by the sector having risen 7.6 per cent in Q3.
During the quarter, home loans accounted for some 40 per cent of total loans, but the more stringent vetting of borrowers meant that three to four in 10 loan applications were rejected, to the dismay of builders.
But these changes have cooled the double-digit rise in home prices of recent years, as well as the purchase of multiple homes. In the past two quarters, home prices inched up 9.6 per cent, while the number of multiple-loan borrowers comprised about 3 per cent of total home loan borrowers.
Asked about the rising contingent liabilities of the federal government - which stand at between 12 and 15 per cent of GDP - Ms Zeti maintained that this would not pose a risk to the economy; she added that Putrajaya was aware of this and was looking at ways to raise economic growth.
"As part of the management of the fiscal debt, there is a need to remain prudent in the debt position of the government and its contingent liabilities," she said, adding that many projects guaranteed by Putrajaya were considered viable and were regularly assessed.
In recent months, public anxiety over the ever-ballooning off-balance sheet amounts has mounted, given that a default could affect the country's sovereign ratings.
For huge infrastructure projects such as the Klang Valley MRT, the possible liabilities are viewed as acceptable. But the government has come under fire for contingent liabilities assumed for less transparent projects and agencies, including state investment agency/sovereign fund 1MDB, which posted a RM665 million (S$257 million) loss last year amid ballooning debts of RM42 billion.