Masked household debt hardships

MALAYSIAN household debt seems sustainable despite the high levels. Total household debt stood at 84.4% of gross domestic product (GDP) or over RM1.7 trillion as at end-March 2026, which is just slightly lower than the 84.7% of GDP at the end of last December.

This is backed by data showing that borrowers’ ability to repay their loans does not seem stretched, with Bank Negara Malaysia (BNM) statistics noting that household loan impairment stood at a steady 1%, the same as at end-December.

But looming across these headline figures and borrowers’ ability to pay is the higher cost of living, which has not dissipated despite financial aid, the mandated minimum wage and the ever-mounting cost of keeping fuel prices down as a result of the Middle East crisis.

Lower to middle-income households face the constant struggle to repay these loans as daily living gets ever more expensive. This is an issue that will continue to loom over policy, alongside higher wages and employment opportunities.

Taken into perspective, Malaysian household debt seems sustainable, as a majority of the loans are tied to housing which, due to its long duration, attracts more stringent lending measures, and therefore, are not likely to default. The constant refrain is that the economy continues to expand, although at a slower pace compared to last year, inflation is manageable and the job market remains stable. However, the fruits of growth, slower inflation and employment is uneven across industries and locations.

The household debt breakdown shows that around 60% of loans are for housing, followed by loans for passenger vehicles.

Personal financing and credit card debt is next, followed by borrowings related to the purchase of securities.

Notably, richer households will continue to leverage on debt to acquire property or to invest in assets that create wealth. This can be considered safer loans as it is backed by a combination of higher income and wealth.

Again, the data paints a largely benign picture as median debt service ratios stand at just 33% for outstanding loans, while for new loans, it is 41%. But the growth of buy-now-pay-later (BNPL) schemes, while enabling access to credit and supporting eCommerce growth, can also be seen as consumers looking to stretch their incomes, especially at the lower-income levels.

According to BNM, total outstanding BNPL debt rose to RM4.9bil at end-December 2026 compared to RM3.8bil at end-June 2026.

Any discussions on the cost-of-living issue as it relates to household debt will have to involve household income. The latest government statistics show that the median monthly household income as of 2024 stood at RM7,017. Median means half of households earn above this threshold, and the other half earn less than this threshold.

Assuming there are two income earners in the household, we are looking at a monthly median income of barely over RM3,500 per person when calculating based on the threshold income level. A simplistic calculation, but it may not be very far off considering previous reports.

Let’s look at income growth. The government data paint a positive picture, as median monthly household income grew at a 5.1% clip in 2024, far outstripping the 1.8% headline inflation for that year and actually coming off the 2.5% rise in inflation in 2023.

This year, the government projects inflation to be between 1.5% and 2.5%. According to Aon plc, a professional services firm, its 2025 Salary Increase and Turnover Study for Malaysia found that businesses here budgeted a 4.8% average salary rise for this year.

Whether headline inflation is at the lower or upper end of government projections, and taking the Aon salary increments into account, Malaysian middle-income earners seem to have a comfortable buffer as their average salary increments are above the projected inflation levels.

And yet, they continue to be weighed down by cost-of-living issues despite, for example, stable fuel prices for the vast majority of vehicle owners.

The “lived experience” is how one colleague observed the struggle of middle-income households to make ends meet, contrasted with government data on wages and inflation which, at the street level, may not meet expectations.

While the lived experience is at the individual level, it cannot be denied that households these days face rising costs.

Take, for example, the cost of housing. The median house price-to-income ratio is 4.7 times, while the generally accepted level is three times income.

This means that housing in the economically dynamic regions of Malaysia such as the Klang Valley is unaffordable to an increasing number of average wage households. Others point to digital services as another cost outlay.

A related issue to income growth is the job market outlook.

In recent months, there have been reports of more layoffs despite employment in general being relatively stable. But again, the headline numbers do not always give a true picture of the struggles of many, including highly experienced professionals with technical skills that have been laid off. This is besides the number of graduates who are unemployed or underemployed.

As a whole, the latest household debt data point to a mixed picture. The low household loan impairment rates simply means that the riskiest borrowers have been excluded, that the banking system is safe, and that those who borrow are not stretched.

What it does show is that Malaysian household wage growth still lags accumulation of debt and this is happening as households struggle with higher costs, low wages and uncertain job prospects.