JULY 4 — So yesterday the second finance minister said our household debt exposure is not at a worrying level. He also said the non-performing loan (NPL) ratio is still reasonable, but that’s another thing.

Is our household debt exposure really okay at the moment? Let’s see. The amount of Malaysian household debt has been growing every year, averaging at about 12 per cent every year since 2008.

Of course, we’re not alone in this regard. We hear similar increases everywhere as people can borrow more easily.

But what should worry us is what it means when we compare our household debt amount to the gross domestic product (GDP). In 2008, our household debt-to-GDP ratio stood at 60.4 per cent and has continued rising ever since.

In 2011, it was 75.8 per cent. Bank Negara’s Financial Stability and Payment Systems Support 2012 estimated the ratio for last year to be at 80.5 per cent.

And why is this continued rise a worrying trend?

Basically, the higher the ratio is, the higher the risk of default, i.e. inability to service the loan. If our debt comprise 80.5 per cent of our earnings, how much of our earnings have to go to repaying the loan commitment? How much will be left for us to live on?

That inevitably leads us to the most important measurement when it comes to household debt — the debt service ratio.

Basically, this tells us how much of what we earn goes into repaying our loan commitments.

In 2008, with our household debt-to-GDP ratio of 60.4 per cent, the average debt service ratio was 39.7 per cent. Last year, the same Bank Negara’s report above put the figure as 43.9 per cent.

While 43.9 per cent is a reduction of the previous high of 45.2 per cent in 2011, it is still substantial. It means that on average, RM439 of every RM1,000 we earn goes into repaying loans.

In comparison, the recommended debt service ratio is between 30 per cent and 40 per cent of income. That recommendation comes from Bank Negara’s Credit Counselling and Debt Management Agency.

So no, Mr Second Finance Minister, our household debt exposure is not at an “okay” level.

While I certainly can’t say that our economy is about to come crashing down because of our household debt exposure, saying that it’s not worrying is a bit rich.

Credit must go to Bank Negara for undertaking various measures to address the issue, but as the International Monetary Fund (IMF) said in its Malaysia’s Financial Sector Stability Assessment report in February this year, it is still early days to say whether Bank Negara’s measures are truly successful.

There is clearly still work to do in respect of addressing rising household debt levels. We’re on our way, it seems, but not there yet. And the issue is still worrying the people until it is truly solved.

Call a spade a spade, Mr Second Finance Minister, and don’t play down issues of real concern.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.