PETALING JAYA: Economists are calling for measures to be put in place that will ensure the country’s household debt-to-gross domestic product (GDP) ratio remains manageable over the long term.
They noted that although the country’s household debt-to-GDP ratio would be manageable in the near term, measures are needed to ensure its sustainability and for the economy to remain on a strong footing over the long term in view of rising global uncertainties.
The household debt-to-GDP ratio indicates the total value of household debt as a proportion of a country’s total economic output or GDP in a given year.
A high ratio signals potential risks, such as a higher likelihood of economic slowdowns or financial instability, as it suggests households are heavily indebted relative to the size of the economy.
Based on official estimates, the economy is projected to grow between 4% and 4.8% for this year and 4% to 4.5% for 2026.
Malaysia’s household debt remains among the highest in Asean, ranking second after Thailand.
As in the second quarter of 2025 (2Q25), the household debt-to-GDP ratio was at 84.8%. The country’s household debt stood unchanged at 84.2% of GDP at the end of 2024 compared to the previous year.
In the Asian region, South Korea has the highest household debt-to-GDP ratio at 92.7%, followed by Hong Kong at 87.8% and Thailand at 86.8%, while Indonesia and the Philippines had a lower rate of 15.3% and 12.4%, respectively, in 2Q25.
MARC Ratings Bhd chief economist Ray Choy
MARC Ratings Bhd chief economist Ray Choy told StarBiz that Malaysia’s household debt is projected to edge higher in 2026, reflecting sustained borrowing momentum amid a favourable macroeconomic and financial environment.
He said debt growth of 5.9% in June 2025 year-on-year (y-o-y) was anchored by a resilient labour market, steady income gains and prudent lending standards that preserved credit quality.
“Over the past decade, Malaysia’s average household debt-to-GDP ratio of 85.6% is higher than the Asean-6 median of 54.4%, which suggests persistent structural factors.
“Although household leverage is elevated, it is not an immediate concern given Malaysia’s strong household financial buffers, with financial assets as at end-2024 amounting to 178% of GDP and low loan-impairment ratios.
“Therefore, while Malaysia’s household debt-to-GDP ratio remains high by regional standards, it is manageable in the near term, supported by prudent lending practices and a resilient banking system.
“In the longer term, it is hoped that higher wealth levels through productivity growth will lead to a decline in the nation’s debt-to-GDP ratio,” Choy noted.
To improve household debt sustainability, he said the nation should focus on promoting savings, prudent borrowing and income growth.
While Malaysia’s financial system remains resilient, shifting from a borrowing-led to a saving-led culture is key to reducing excess credit growth and strengthening the domestic capital base.
“Policy priorities include enhancing financial literacy, tightening lending standards, and introducing incentives for long-term savings.
“Additionally, it would be advantageous to have income and productivity growth exceed credit expansion, thereby reducing debt-to-GDP ratio and safeguarding financial stability over the long term,” Choy said.
In the short term, he said behavioural programmes that encourage budgeting, regular savings and responsible credit use can help households manage financial pressures more effectively.
At the same time, Choy said Bank Negara Malaysia (BNM) continues to refine macroprudential policies and monitor interest rate conditions to ensure leverage remains manageable.
Collectively, these measures would help steer household debt growth toward a more sustainable, income-driven path while safeguarding financial stability, he said.
Sunway University economics professor Yeah Kim Leng, who is also an adviser to the government, said while a household debt-to-GDP high ratio indicates increased risks and vulnerability to a household debt crisis, other key metrics need to be considered such as type of loans, financial assets to debt, debt servicing ratio and borrowers’ creditworthiness.
“At the macro level, the country’s economic and financial conditions related to GDP growth, inflation, interest rate and labour market also influence the degree to which we should worry over high household debt levels.
“With relatively favourable growth and employment prospects amid a low inflation and stable interest rate environment, the high-but-stabilising household debt level in Malaysia merits attention but not undue concerns that require sharp policy changes,” he said.
To ensure the household debt-to-GDP ratio improves, he said successful implementation of growth-enhancing policies and strategies in Budget 2026 and the 13th Malaysia Plan would expand GDP, thereby lowering the debt ratio while enabling households to receive higher income to service their debts and keep abreast of inflation and the cost of living.
At the individual and household level, Yeah said promoting financial literacy, prudent borrowing and responsible lending practices would be essential to improve the country’s household credit risk profile.
Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid projects household debt would grow at a moderate pace of 5.3% in 2026 and this would result in a slight decline in the household debt-to-GDP ratio of around 84.3% next year, as consumers become more cautious.
He noted that mortgages and vehicle financing would continue to be the main drivers along with credit cards and personal financing.
He foresees full employment status shall remain in 2026 and this would allow the household debt to remain at an elevated level.
To further improve household debt, Mohd Afzanizam said financial literacy should be made an ongoing campaign.
The pertinent thing here is the content and how it is transmitted, for example, social media versus direct engagement through seminars or town halls.
“At the end of the day, it is the decision of the individual to take on debts. Some would take for necessitates such as buying a house and a car that is within their means where the debt servicing ratio (DSR) for the newly approved and outstanding financing remain steady at 41% and 33%.
“On that note, the household condition is still manageable with the ratio of impaired financing for the household sector remaining low at 1.1% as of the first half of 2025 compared to 1.3% in the first half of 2023,” he said.
Mohd Afzanizam said there is no hard and fast rule in managing the household debt. The parameters such as DSR and how BNM would regulate the banking industry are extremely critical guard rails to prevent a blowout in the household debt, he said.
Furthermore, beyond income, he said it is how one would perceive their life in terms of their financial conditions and personal success.
OCBC Senior Asean economist Lavanya Venkateswaran
Commenting on household debt, OCBC senior Asean economist Lavanya Venkateswaran said the differing definitions of household debt make direct comparison of this metric less accurate.
“That said, Malaysia’s household debt is backed by investments including property and motor vehicles. Borrowing for consumption purposes has been relatively stable in the first half of 2025 compared to end-2024.
“The authorities, including BNM and the government, are stepping up vigilance to ensure debt sustainability.
“More fundamentally, structural reforms being undertaken to support broader economic growth can allow for more sustained income growth, leading to lower debt servicing costs,” she said.
Lavanya said the risks around household debt levels are well contained in Malaysia, given the sound monitoring and reporting processes.
Importantly, higher household debt complemented by strong income growth, healthy debt servicing ratios and backed by assets more likely reflects improved household sentiment.
This is also broadly supportive of household consumption, she said.
