KUALA LUMPUR, April 3 — Malaysians households were unlikely to be pushed into financial distress as a result of the coronavirus disease (Covid-19) pandemic and ensuing economic slowdown, according to a Bank Negara Malaysi (BNM) report.
The central bank said in its Financial Stability Review 2019 that while the country’s high household debt rose last year to the equivalent of 82.7 per cent of the entire economy, most borrowers should be able to withstand the shock hitting the local economy.
“Overall debt-servicing capacity of households, however, continues to be supported by income growth and adequate financial buffers.
“At the aggregate level, both outstanding household financial assets and liquid financial assets remained broadly stable at 2.2 times and 1.4 times of debt, respectively,” the report said.
BNM cited prudent lending guidelines local banks have practised to ensure quality borrowers, saying these have reduced risks of households experiencing financial difficulties as a result of their loans.
Matters change for low-income groups, however, with BNM saying households earning below RM3,000 were at elevated risk of becoming delinquent in their loans, particularly mortgages.
In Malaysia, households with a median income of RM3,000 monthly are within the Bottom 40th (B40) percentile of income earners.
The report said households in this group typically have about nine times more debt than assets, fuelled primarily by residential loans that were encouraged by the recent Home Ownership Campaign.
In 2018, BNM already warned that home prices in Malaysia were “seriously unaffordable” by global standards.
“Their low financial buffers also mean that they would have greater difficulty maintaining debt repayments in times of stress,” BNM said when noting that the B40 accounted for over half of those seeking credit counselling.
“Low income, coupled with poor financial planning, continued to be the main causes of financial difficulty faced by these borrowers, as they tend to overestimate their ability to cope with higher costs of living and debt obligations.”
BNM acknowledged that household income and balance sheets could suffer from measures taken to contain Covid-19 but said the steps the federal government and the central bank have taken should alleviate this.
In Putrajaya’s RM250 billion Prihatin stimulus package, added focus was given to the B40 to help them ride out the economic turmoil caused by the movement control order (MCO) put in place to contain Covid-19 in the country.
Under the right conditions, a B40 household could receive up to RM7,864 in various aid under the package that Prime Minister Tan Sri Muhyiddin Yassin announced last month.
BNM also removed significant debt pressure on households through its automatic six-month moratorium on all loan repayments starting April.
The B40 are especially vulnerable to the mandatory stop of all non-essential activities under the MCO as many are day labourers who do not get paid unless they work, which they are unable to do at the moment.