Moody's: Fall in household loan growth is credit positive for Malaysian banks

KUALA LUMPUR: The further fall in household loan growth in Malaysia in 2016 is credit positive for the asset quality of local banks as it points to a slower pace of debt accumulation among households, said Moody's Investors Service.

The international ratings agency said on Tuesday that data from Bank Negara showed an improvement in the quality of new household lending in Malaysia. 

“In 2016, the growth in household loans was driven by safer housing loans -specifically, loans supported by property collateral - and which exhibited low delinquency ratios, while the growth in riskier unsecured loans remained weak.

"Furthermore, the continued deceleration of household loan growth will help stabilise the high household leverage situation in Malaysia, which
is among the highest in Asia, and we expect that household debt to GDP for 2016 will moderate from the 89% recorded at end-2015,” said Moody's Vice President and Senior Analyst Simon Chen in a statement.

He added that among the Malaysian banks rated by Moody's, Public Bank Berhad (A3 stable, a3) and Hong Leong Bank Berhad (A3 stable, baa1) — the banks with
the largest exposure to the household sector — will benefit the most from further improvements in the leverage profile of households. 

These conclusions were part of a newly-released report on banks in Malaysia, titled "Continued Slowing of Household Loan Growth Is Credit Positive
for Malaysian Banks".

On January 31, 2017, Bank Negara released banking system data that revealed the further decline in household loan growth in 2016 from a year ago. 
At end-2016, total outstanding household loans — making up 57% of total banking system loans — had grown 5%.

The report noted that a decline in auto loan growth also reflected households' increasing cautiousness towards discretionary spending. 

The overall household impaired loan ratio remained stable at 1.1% at end-2016,unchanged from the level at end-2015.

While asset quality for residential mortgages (55% of total household loans) and auto vehicle loans (19%) remained unchanged from a year ago, the impaired loan ratio for unsecured loans — including personal and credit card loans — rose in 2016, indicating an increase in loan delinquencies and defaults among unsecured household borrowers.

At end-2016, the impaired loan ratio for unsecured loans was 1.9%, much higher than the ratios for other household loans, reflecting the higher
risk nature of the unsecured household loans.