Maybank Research: RM784bil household debt not systemic threat, yet

Published: Friday July 12, 2013 MYT 1:44:00 PM 

Updated: Friday July 12, 2013 MYT 2:06:15 PM

KUALA LUMPUR: Malaysia's household debt is not yet a "systemic risk" but there are real concerns that it is outpacing GDP growth, Maybank Investment Bank Research said in the wake of Bank Negara Malaysia's move last week to control the debt level.

Household debt is currently at 82.9% of GDP and growing at 11.5% a year - and could hit 97% in 2018 if GDP were at 7.5% per annum.

However, the research house said on Friday there was little evidence of stress in household debt at this point.

"In fact, household non-performing loan (NPL) ratios have fallen dramatically over the past few years from 7.5% in 2006 to just 1.4% presently," it pointed out.

Morever, cumulatively savings - in terms of deposits and EPF contributions - in 2012 is at a comfortable 108% of household debt.

Asset quality also remained impeccable, financial assets coverage high, and debt-servicing capabilities decent as the job market and income growth in the country continued to be stable, it said.

"Concerns would arise if unemployment or inflation/higher interest rates becomes an issue. As it stands, we are expecting inflation to rise from an average of 1.8% this year to 2.0%-2.5% in 2014 with the re-commencement of the gradual subsidy reduction programme that would result in higher electricity and fuel prices," Maybank Research said.

The introduction of the much delayed Goods and Services Tax (GST) is another factor to consider, although this is not expected to happen in 2014.

"Interest rates, however, are likely to remain stable, for economic growth is likely to take precedence. At worst, we expect the overnight policy rate to be raised to 3.25% in 2014," it said.

Malaysia's household debt/GDP ratio of 81% at the end of 2012 was one of the highest in Asia, second only to South Korea at 91%. The ratio was nevertheless lower than that of the other developed economies, which averaged about 90%.

What are the main components of household HH debt in the country?

Maybank Research said there were three: mortgages at 45% (end March 2013), vehicles 18% and personal financing at 17%. Others include non-residential properties at 7.5%, securities at 6% and credit card at 4.2%.

(The number of credit cards in circulation has fallen from a peak of 10.8 million cards in 2008 to 8.2 million by the end of May 2013, following Bank Negara's move to restrict credit card issuance in 2011. Credit card balances making up just 4.2% of household debt today.)

Although Bank Negara has introduced a series of measures to control housing loan since 2010, monthly mortgage loan growth has averaged 12-14% since July 2010 and continues at 12-13% year-on-year up to May 2013, with little sign of cooling down.

House prices have continued to rise and the National Property Information Centre (NAPIC)'s all-house price index rose another 6% year-on-year the first quarter of 2013, fueling the strong demand momentum.

As at the end of March this year, Malaysians had borrowed more than RM350bil for residential property purchase, RM138bil for vehicle purchase and close to RM132bil for personal finances.

On July 5, Bank Negara introduced three measures to control household debt, including 1) a maximum tenure of 10 years for personal loans, 2) a maximum tenure of 35 years for property loans, and 3) a ban on pre-approved personal financing products.