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Malaysia's household debt is no big worry

Published Wed, Apr 9, 2014 · 10:00 PM
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IS Malaysia's rising household indebtedness a serious problem? Fitch Ratings, the rating agency that downgraded the outlook for the Malaysian sovereign last July, has been sufficiently concerned to flag household debt as a downside risk for future bank ratings.

But the available data indicate otherwise, signalling that macro-prudential measures instituted by both the central bank and the government are actually working. Although its absolute quantum remains distressingly high, growth in household debt has eased to its slowest pace since 2010. Not if you go by the absolute percentages though. Total household debt inched up to 86.8 per cent of gross domestic product (GDP) in 2013 from around 80 per cent in 2012.

But what's notable is that the rise had more to do with the sharp fall in nominal GDP growth last year - to 4.6 per cent, from over 7 per cent in 2012 - than any rise in borrowings. In fact, growth in household borrowings declined to 11.7 per cent in 2013 from 13.5 per cent in 2012. The central bank now also has more powers to deal with runaway debt. The Financial Services Act, which gives Bank Negara Malaysia more oversight over non-bank financial enterprises (NBFEs), came into force in the middle of last year. NBFEs, which have captured around 58 per cent of the personal loans' market, have driven the spike in personal loans. But the Act has allowed Bank Negara Malaysia to stem the NBFE boom. As a result, lending to households by these institutions, such as Bank Rakyat and the Malaysian Building Society, halved in 2013.

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