Malaysia, Thailand and China among top markets for household debt

LONDON: An estimated US$6.2 trillion jump in emerging market household debt should stir regulators into action, given the red flags raised by rising problem loans and slowing economic growth, the Institute of International Finance said in a report.

The IIF estimated that combined global household debt was now more than 44 trillion and that US$6.2 trillion of a US$7.7 trillion rise in the amount since 2007 - prior to the global financial crisis - was in emerging markets.

That equated to a rise in those regions of more than 120 per cent to around US$3,000 per adult, according to latest data.

These increases in the context of slowing growth in emerging economies and combined with a sharp rise in corporate debt, has contributed to an increase in the level of problem loans in many EM banks, most notably in Asia, the IIF said.

“With slow growth and deflation risk stalking the global economy, the relatively high level of debt in these countries could become a burden,” the report said.

“As such, these situations need to be monitored closely (by authorities and regulators) and addressed.”

The three biggest rises in the household debt-to-GDP gap were in Thailand, Malaysia and China.

In China, household debt to income levels have risen rapidly in recent years, to nearly 60 percent from 35 percent in 2007.

Virtually 90 per cent of Chinese are homeowners - one of the highest rates in the world - and there is a concern that a steep decline in prices could hit the country hard.

In Malaysia, the debt ratio is much higher at over 145 per cent. House prices there have risen by around 75 per cent since 2007, while in Thailand they have risen 28 per cent since early 2008.

“Malaysia’s household sector appears quite vulnerable to what could shape up as a perfect storm,” the IIF said citing, “weakening growth, rising interest rates to defend the depreciating ringgit and a possible correction in house prices.”

The IIF is a banking industry group comprising almost 500 banks, asset managers and wealth funds in around 70 countries.