Budget 2025: Household debt-to-GDP ratio remains stable

AS at June 2024, household debt in Malaysia reached RM1.57 trillion, with the aggregate household debt-to-gross domestic product ratio remaining broadly stable at 83.8%.

This was primarily attributed to a 6.2% increase in household borrowing, underpinned by sustained improvements in the labour market and robust economic growth.

Housing and car loans were the main contributors, accounting for 74.5% of total household debt.

Housing loans grew by 7.4%, supported by measures to promote homeownership, particularly for first-time buyers.

Meanwhile, car loans saw a significant increase of 10.4%, reflecting higher vehicle sales in the first half of 2024 compared to the same period last year.

In contrast, the growth rates for credit card usage and personal financing is recorded at 8.9% and 3.3%, respectively.

Household credit growth closely tracked income levels, with the segment's resilience supported by healthy debt servicing capacity and substantial financial buffers.

Lending to households continued to be underpinned by sound underwriting standards and loan affordability assessments.

As at June 2024, the median debt service ratios for outstanding and newly approved loans were 34.6% and 40.7%, respectively, signifying that households are less susceptible to financial distress.

Additionally, the household's aggregate financial buffers remained robust at 2.1 times the aggregate debt level.

Financial stress among households is minimal, with repayment difficulties primarily confined to a small segment of borrowers with pre-existing vulnerabilities.

These include lower-income borrowers, those previously under repayment assistance programmes and individuals whose income levels have not fully recovered since the pandemic.

Moving forward, the anticipated enactment of the Consumer Credit Act will further strengthen the regulatory framework for non-bank credit providers and credit service providers.

This legislation will promote a prudent and responsible lending culture among credit providers, including those providing the “Buy Now Pay Later” facilities as well as to promote responsible consumer borrowing, thus ensuring protection against financial hardship due to excessive debt burdens.

Meanwhile, the domestic capital market remained steady, continuing its role to support domestic economic activity and effectively mobilising investments.

In the first seven months of 2024, private sector fundraising edged up by 0.2% to RM70.2bil, with gross funds raised in the domestic equity market expanding by 13.9% to RM3.3bil.

However, fundraising activities in the public sector declined by 2.7% to RM110.9bil in line with the government's commitment towards fiscal reforms.

Overall, gross funds raised in the capital market decreased slightly by 1.6% to RM181.1bil.

Funds raised through new corporate issuances decreased marginally by 0.4% to RM66.8bil, mainly comprising medium-term notes accounting for 92.2% of total corporate bonds issuance.

On a sectoral basis, new corporate bond issuances were dominated by the finance, insurance, real estate and business services sectors, which comprised 76.5%.

These funds were mainly allocated for working capital, new ventures, refinancing and other corporate needs.

Despite the reduction, financial support for businesses remains intact, attributed to anticipated growth in bank financing, particularly for small and medium enterprises.