As household debt rises, BNM insists on right track

KUALA LUMPUR, Aug 21 — Despite the persistent increase in household debt-to-gross domestic product (GDP) ratio as shown today, Bank Negara Malaysia (BNM) has insisted that its additional measures initiated last month has started to work.

This comes as the central bank announced today that the debt-to-GDP ratio has jumped 3.3 per cent in the second quarter of this year, up from 82.9 per cent in the first quarter.

"The bulk of expansion in personal finance and housing loans were by non bank credit providers," BNM Governor Tan Sri Dr Zeti Akhtar Aziz told reporters here.

BNM insisted that the measures are already in place to promote sound and sustainable borrowings, noting that low delinquencies, and minimal non-performing loans with 1.3 per cent gross impaired loan ratio.

"We have already announced the measures much earlier and those are the measures in place. We've already seen household debt moderated slightly already and this is the outcome that we wanted to see," Zeti said.

In July, BNM had introduced three new measures to curb Malaysia’s rising household debt which included reducing the maximum tenure for personal loans to 10 years, and 35 years for house loans.

Offers for pre-approved personal loans have also been prohibited.

Zeti explained today that BNM will embark on road shows to further educate the public on prudent spending and responsible borrowing, instead of more tightening measures.

"We didn't want to see significant tightening that will pose an overadjustment... We’re depending on consumption activity that is sustainable," she added.

Malaysia’s household debt-to-GDP ratio rose from 75.8 per cent in 2010 to 76.6 per cent in 2011, and to 80.5 per cent in 2012, which is one of the highest in the region.

Although non-bankingfinancial institutions (NBFIs) and development financial institutions (DFIs) only account for 12 per cent of Malaysia’s total household credit, they are responsible for 57 per cent of personal financing credit, a figure that has risen significantly.

The comparative ease of obtaining personal loans has increased the percentage of personal financing over household debt from 16 per cent in 2011 to 17 per cent last year.