KUALA LUMPUR, September 29 – Many Malaysian households, especially in the middle and upper income categories, still appear to be able to take out new loans for purposes such as buying homes and cars, said today Bank Negara Malaysia (BNM).
In its Financial Stability Review report for the first half of this year, BNM noted that most borrowing households in Malaysia remain resilient, while those facing higher levels of financial stress could access additional buffers through political support measures.
By the end of June this year, the country’s household debt growth had risen by 5.5% compared to the same period last year, as more borrowers started repaying their loans again after coming out of the moratorium. on loans, BNM said.
In terms of quarterly growth, however, the BNM said it revealed that household debt growth had moderated or reduced during this period, while the previous vigorous response – to incentives put in place in the second half of 2020. to own a house and buy cars – has faded. , while movement restrictions had also weighed on consumer spending and led to a decline in personal financing and credit card loans.
But overall, the BNM said there was little indication that households were significantly reducing their debt.
“At the aggregate level, there are few signs of strong household deleveraging, suggesting that many households continue to have the financial capacity to take on new debt,” he said in the report.
Middle and upper income borrowers are probably better off
From a more cautious perspective on credit risk, the BNM observed that banks continued to lend to households, particularly for guaranteed or guaranteed loans, with bank loans to households showing steady growth of 5.2% year-on-year. annual.
Excluding credit cards, about 70 percent of new loans made by banks in the first six months of this year were aimed at middle and upper income groups.
“About 70% of new disbursements from the banking system in the first half of 2021 continued to flow to middle and high income borrowers who have a greater capacity to take on new debt, with 40% and 20% of total new debt. disbursements. going to the purchase of residential properties and cars respectively, ”BNM said.
The BNM said the debt service ratios on loans to existing and new households remained at a conservative level of 35% and 41% at the end of June, compared to 35% and 43% at the end of December 2020. Debt refers to the ratio of total monthly bank and non-bank debt to the monthly disposable income or net income of a borrower.)
For borrowers with a debt service ratio above 60 percent, they still make up about a quarter of total household borrowers in Malaysia, with 24 percent at the end of June, which is comparable to 25 percent at the end of December 2020.
“A significant proportion (66%) of the debt held by these borrowers is associated with middle and upper income groups who are more likely to withstand financial shocks,” BNM said.
The overall ratio of household debt to GDP improved from 93.2% at the end of December 2020 to 89.6% at the end of June, but remains high amid a slow recovery in nominal GDP, the BNM said.
Most vulnerable borrowers earning less than RM 5,000 per month
The uneven economic recovery in Malaysia is exemplified by how household debt risks are confined to a “small but deeply stressed” segment of borrowers, such as those forced to use their retirement savings and other cash reserves to cope with the financial impact of the pandemic.
The BNM has examined the levels of financial assets held by households in Malaysia, which cover employee provident fund (EPF) retirement savings, deposits, mutual funds, equity or shares. held, and the cash value of insurance policies upon surrender.
BNM said household financial assets grew 5.4% annually in June 2021 from 7.2% in December 2020, but the real value as a whole fell by 3 billion ringgit between the period. December 2020 and June 2021..
The BNM said the RM3 billion drop was mainly due to the fact that Malaysians’ overall retirement savings had declined significantly, due to the withdrawals of part of their retirement savings under the i- programs. Sinar and i-Lestari from EPF.
The BNM has warned that withdrawing such savings could in the long run make things more difficult in the future for some Malaysian households who are already likely to have insufficient savings for retirement, citing the 2018 EPF report on social protection where the EPF study showed that two of the three active contributors to the EPF should have insufficient retirement savings for a minimum monthly pension of RM 1,000.
“In the short term, however, the flexibility offered to households to withdraw their retirement savings early has provided an additional source of funds to help them overcome the current financial strains,” he said.
In terms of risk, the BNM said its simulations – as included in its financial stability review for the first half of 2020 – suggest that there would be a “relatively modest” percentage of family borrowers or between. 11 and 15% of borrowers who would have to use their existing savings to pay off their loans and living expenses over the next 18 months, in the event of an income shock and unemployment.
This simulation was a conservative simulation that excluded the impact of any policy measures aimed at facilitating the cash flow of borrowers, such as repayment assistance programs that started after the first quarter of 2021, their withdrawals from savings- government pension and cash transfers, with simulated buffers drawn from Q2 2020.
On the simulated estimate of between 11 and 15 percent of borrowing households, the BNM estimated that there would be a much smaller share of borrowers (1.9 percent) who are “most at risk” because they are more likely to exhaust or exhaust all their cash or deposit reserves.
“About two-thirds (65%) of these at-risk borrowers include those who earn less than RM 5,000 per month and who were also more in debt than other income groups before Covid-19,” he said in noting that these borrowers had more debts before the pandemic.
In terms of loans granted by banks, these “most vulnerable” or most at risk borrowers represent, according to estimates, only 1.3% of these loans.
“Most borrowing households therefore appear to have sufficient financial reserves and remain reasonably resilient, with policy assistance measures providing additional reserves against potential shocks,” the BNM said, adding that this also reflects banks that have conducted Stronger accessibility assessments in line with responsible lending standards. introduced by BNM since 2012.