Malaysia’s household debt to gross domestic product (GDP) ratio is expected to decline in 2016 once the official statistics are revealed in March 2017, according to economists, reported The Star Online.
“After seven consecutive years of rising household debt, the ratio is estimated to have eased marginally from 89.1 percent as at end-2015 to around 88.5 percent as at end-2016. Weaker consumer sentiment and Bank Negara’s macro prudential measures have moderated household debt growth,” said RAM Ratings’ Wong Yin Ching.
In addition, Moody’s Investors Service revealed that the slowdown in household loans last year is a positive step in improving the asset quality of Malaysian financial institutions and slashing household debt levels, after a spike in the ratio for 2015 ignited concerns.
If this situation continues it would stabilise Malaysia’s household debt, which is among the highest in Asia, noted the firm’s Vice President and Senior Analyst Simon Chen, adding that the household debt ratio for 2016 could moderate from the 89 percent seen at end-2015.
But after 2016, it would be hard to achieve further reductions due to higher loan caps for government employees and more accessible end-financing schemes under the 1Malaysia People’s Housing Programme (PR1MA) under Budget 2017. Other factors leading to this situation is rising inflation, external headwinds and the state of the domestic economy, said experts.
“Increased loan limits for civil servants to purchase homes, motorcycles and computers/smartphones were also introduced by the government in Budget 2017. Overall, we expect the household debt-to-GDP ratio to be sticky at around current levels,” noted Wong.
He explained that the country’s household debt has remained high for some time, given that people age 25 to 39 account for 26 percent of its populace. This asset-accumulating group is also growing faster than Malaysia’s overall population.
Meanwhile, Alliance Bank Malaysia Bhd Chief Economist Manokaran Mottain is urging the authorities to focus on the sustainability of household debt, because if many consumers are unable to repay their loans, the ratio would further increase every year until it becomes a serious problem.
“There are several factors which could act as catalysts for growth in household debt and debt service ability. Stronger private consumption contributes to higher growth in credit. However, since consumer sentiments are still in bearish territory, it is unlikely for a rapid increase in private consumption.”
“Higher inflation in 2017 could also be a risk to debt service ability, as higher inflation adds to the cost of borrowing. Finally, if the denominator in the equation that is GDP growth comes below the pace of household loans expansion, then household debt to GDP ratio could be steady or even rise.”
According to Manokaran, the household debt ratio would remain steady at about 89 percent in 2016. It is expected to stay at this level for a while, before a sizeable decline happens.
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
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