THE household debt to gross domestic product in Malaysia had fallen slightly to 83% in 2018, thanks to the growth in the economy which was faster than debt. 

Bank Negara’s report showed the country’s household debt stood at RM1.18 trillion in 2018, of which residential housing loans accounted for 53.2% or RM628bil of total household debts while the remaining 46.8% were for personal consumption including motor vehicles, credit card and personal finance.

The central bank had warned that there was a growing number of defaults in personal financing. It highlighted that half of total outstanding personal financing was held by borrowers with monthly earnings below RM5,000 and they mainly used it to support “lifestyle choices”.

It added that some households were showing signs of difficulty in servicing their debt, especially among low-income borrowers with personal financing, and borrowers with larger housing loans above RM500,000 and who are more dependent on variable income sources.

It is worth noting that house prices continued to grow more moderately in the second quarter of 2018 at 1.7%, with preliminary data for the third quarter suggesting a further moderation to 1.1%.

Despite the growing debt, Bank Negara said the ratio of household assets to debt remained high at four times, which provided them with ready access to funds to meet debt obligations and adjusted to unexpected changes in their financial circumstances.

“Individuals earning below RM3,000 per month, however, remained vulnerable, given their low financial buffers,” Bank Negara said in its Financial Stability and Payment Systems Report 2018.