HOUSEHOLD DEBT LEVEL ‘WORRYING’
It has eased in terms of percentage to the GDP but not in value, say economists
MALAYSIA’S household debt level is still at a worrying level despite the ratio to gross domestic product (GDP) having declined in the first half of this year, according to economists.
They noted that the household debt level had eased in terms of percentage to the GDP but not in total value.
According to Bank Negara Malaysia’s Financial Stability Review for the first half, Malaysia’s household debt-to-GDP ratio had declined to 89.6 per cent from a peak of 93.2 per cent as at the end of last year (2019: 82.7 per cent).
However, the central bank said the debt level remained elevated amid the sluggish recovery in nominal GDP.
Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latif said the percentage decline was rather due to the surge in Malaysia’s GDP in the second quarter.
“If you look into the amount itself, I do not think the number has been decreasing. Household debt still stands at about RM1.17 trillion, higher than the federal government debt.
“The reason why the percentage
has been declining is because we have an improvement in the GDP. Malaysia experienced a huge jump in GDP in the second quarter and, hence, that is why household debt seems to be declining.
“The debt level of Malaysian households remains the highest in Southeast Asia and the second highest in Asia. It is a worrying trend,” Ahmed Razman told the New Straits Times.
The domestic economy rebounded sharply by 16.1 per cent year-on-year in the second quarter
due a the low base compared with the same period last year.
The household debt-to-GDP ratio may climb to above 90 per cent again as the government has revised lower its GDP growth forecast for this year to three to four per cent from 6.5 to 7.5 per cent previously.
But Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the household debtto-GDP ratio was expected to remain below 90 per cent following the expansion in nominal GDP.
“I believe that banks have been
cognisant in respect to risks associated with household debt and have remained vigilant via strict credit underwriting standards. Furthermore, the constant engagement with Bank Negara has allowed for better communication with regards to the state of household indebtedness.”
Afzanizam added that banks risk management had been robust and rigorous.
“With that, the possibility of a crisis emanating from household debts looks fairly contained and low,” he added.