KUALA LUMPUR: As of the end of June 2021, 12.8 per cent of household loan accounts, or 16 per cent of outstanding household loan exposures, were under a repayment assistance plan with borrowers earning less than RM5,000 monthly forming two-thirds of these loan accounts.
This was higher than the 8.9 per cent of household accounts, or 11.1 per cent of outstanding household loan exposures, as of December 2020, Bank Negara Malaysia (BNM) said.
"While access to repayment assistance is helping to temporarily support borrowers’ debt-servicing capacity, a more entrenched economic recovery remains key to restoring the longer term financial health of borrowers,” it said in its Financial Stability Report for the first half of 2021 released here today.
The central bank pointed out that some early positive signs of this were observed, as the total share of household accounts under repayment assistance began to fall between February (11.5 per cent) and May (10.6 per cent), just before the Full Movement Control Order (FMCO) was imposed.
The report also stated that as of end-July 2021, the share of household loan accounts and exposures under repayment assistance also rose sharply to 25.4 per cent and 30 per cent of total household accounts and loan exposures, respectively.
On other developments, it said borrowers who opted for the latest assistance packages were spread across all income groups. This, coupled with the more flexible eligibility criteria for assistance, suggests that the recent rise in accounts under repayment assistance is not solely driven by borrowers in distress.
Surveys by BNM and anecdotal evidence indicate that about a third of borrowers that applied for repayment assistance is partly using it to build up precautionary buffers, and to a lesser extent, for investments in the equity market.
Banks’ exposures to household investors have also risen slightly from pre-pandemic levels to 13.7 per cent of overall banking system loans (December 2020: 13.6 per cent; December 2019: 13.3 per cent ).
However, the annual growth rate of banks’ housing loan exposures to owner-occupiers continued to outpace that of exposures to household investors (8.4 per cent and 5.2 per cent, respectively; December 2020: 8.7 per cent and 5 per cent ). So far, household investors are predominantly higher income earners who are typically more resilient to income shocks.
The average loan-to-value (LTV) ratio of outstanding housing loans by household investors also remained relatively low and stable (54.8 per cent; December 2020: 54.9 per cent ), thus preserving ample buffers against a potential decline in house prices, it said.
Those earning less than RM5,000 are more highly leveraged
As for household financial assets, the report said that although it registered an annual growth of 5.4 per cent in June 2021 versus 7.2 per cent in December 2020; in level terms, aggregate financial assets declined between December 2020 and June 2021 by RM3 billion, mainly driven by overall retirement savings which were significantly lower due to the i-Sinar and i-Lestari programmes.
Over the longer term, the drawdown of such savings could compound future difficulties for some households that are already likely to have insufficient savings for retirement, said BNM.
Conservative simulations by the central bank suggest that the share of borrowers that would have to draw on pre-existing savings to meet their debt obligations and living expenses over the next 18 months in the event of assumed income and unemployment shocks is likely to be relatively modest, at between 11 per cent and 15 per cent of borrowers.
Of these borrowers, those who are more likely to deplete their cash or deposit buffers, and are thus most at risk, are estimated to form a much smaller share (1.9 per cent ) of household borrowers.
"About two-thirds (65 per cent ) of such at-risk borrowers comprise those earning less than RM5,000 monthly who were also more highly leveraged compared to other income groups pre-COVID-19. Exposures of banks to these most vulnerable borrowers are estimated to account for only 1.3 per cent of banking system loans,” it said.
Most household borrowers, therefore, appear to have sufficient financial buffers and remain reasonably resilient, with policy assistance measures providing additional reserves against potential shocks.
Bank lending to households steady, mainly to middle and high income earners
Bank lending to households also held steady (5.2 per cent year-on-year growth; December 2020: 5 per cent ), particularly for secured loans, amid a more cautious outlook on credit risk.
Around 70 per cent of new banking system disbursements in the first half of 2021 continued to be channelled to middle- and high-income borrowers who have a greater capacity to take on new debt, with 40 per cent and 20 per cent of total new disbursements going towards the purchase of residential properties and cars, respectively.
Importantly, lending continued to be underpinned by sound underwriting standards, with the debt service ratios of newly-approved and outstanding household loans maintained at a prudent level of 41 per cent and 35 per cent (December 2020: 43 per cent and 35 per cent ), respectively.
Similarly, the share of borrowers with a debt service ratio above 60 per cent has remained at around a quarter of total household borrowers (24 per cent; December 2020: 25 per cent ).
A significant proportion (66 per cent ) of the debt held by these borrowers is associated with the middle- and high-income groups who are more likely to be able to withstand financial shocks.
Household debt growth was broadly sustained as at end-June 2021, expanding by 5.5 per cent (December 2020: 5.5 per cent) over the same period last year even as more borrowers resumed payments on their loans after exiting from loan moratoria.
Quarter-on-quarter trends, however, revealed that household debt growth moderated during this period as the strong response to various home ownership and car purchase incentives rolled out in the second half of 2020 tapered off.
The overall household debt-to-GDP ratio improved to 89.6 per cent but remained elevated amid the sluggish recovery in nominal Gross Domestic Product (GDP).
Malaysia's household debt-to-GDP was 93.3 per cent as of December 2020. - Bernama