BNM FSPS Report 2014: Household debts moderating

KUALA LUMPUR: Malaysia’s household debt has moderated over the past two years, growing by 9.9% to RM940.4bil at end-2014 while a positive trend showed new household borrowings were also of higher quality.

According to Bank Negara Malaysia’s (BNM) Financial Stability and Payment Systems Report for 2014, about 80% of new loans (based on number of new loan accounts) have debt service ratio (DSR) for all outstanding debts of less than 60%, while half have a DSR of less than 40%.

It said there was continued moderation in the expansion of financing for personal use. This was consistent with improved assessments by banks and NBFIs of the ability of borrowers to take on additional debt. 

The healthy aggregate balance sheet of households has continued to lend support to overall debt servicing capacity amid stable employment and income conditions.

For borrowers with monthly earnings of RM3,000 and below, the share of new loans (based on the number of new loan accounts) with a DSR of less than 60% is higher at 91.8% (July 2013: 85.9%), while the share of new loans with a DSR of less than 40% remained stable at about 58%. 

“The ratio of household debt-to-gross domestic product (GDP) rose only marginally, compared with earlier years, to 87.9% (2013: 86.7%),” it said.

In 2014, aggregate financial assets increased by RM110bil, compared with an increase of RM84.5bil in debts. 

Deposits and deposit-like instruments contributed to about 57% of the increase in financial assets and represent more than 42% of household financial assets. The high composition of such assets provides households with a comfortable buffer against unexpected changes in income or expenditures. 

Although the value of investments in equity and unit trusts was slightly lower, reflecting developments in the equity market, such assets account for about a fifth of household financial assets. 

“Collectively, about 64% of household financial assets is readily available if needed for households to meet higher financial outlays.” BNM said.

Housing wealth has also increased in recent years. Properties remain an important investment class for many households to finance children’s education, provide a form of financial security for the next generation and prepare for retirement. 

Over the past five years, borrowings by households to invest in property (as proxied by the number of individuals with two outstanding housing loan accounts) have been growing at a steady average rate of about 4.7%. 

This added to total household assets (including housing wealth) which expanded by 5.7%. The ratio of total household asset-to-debt has remained high and stable at 3.6 times (2013: 3.7 times).

“Latest data continue to show a reducing share of debt attributed to lower income households that earn RM3,000 or less a month, to 26.7% of total household debt (2013: 27.3%; 2012: 33%).

“The amount of new debt assumed by households was RM3.8bil lower in 2014 than in the previous year,” it said as most of the borrowings were financing secured by property and financial assets, thus reducing the net exposure to households in an event of stress. 

Risks associated with the accumulation of unsecured household debt have continued to recede. New unsecured borrowings accounted for a substantially lower share of total new household debt for the year (2014: 8.6%; 2013: 16.5%). 

For 2014, households accumulated an additional amount of RM7.3bil in outstanding credit card balances and personal financing, accounting for less than 40% of the average annual increase in credit card and personal financing recorded between 2010 and 2013. 

About 92% of the outstanding credit card balances are current (that is not yet due). Excluding these balances, which are usually fully or partially settled on or before the payment due date, outstanding credit card and personal financing increased by RM6.8bil (2013: +RM13.2bil). 

As credit cardholders continue to consolidate outstanding balances with more than one issuer, the number of cards with revolving balances declined further by 6.5% to account for 46% (2013: 50%) of total cards in circulation. 

In value terms, the amount of revolving card balances that were rolled over declined by 12% during the year.