Malaysians are over-borrowing, says an economist. What do you think?

While authorities say Malaysia's rising household debt is not a concern, the caveat is that interest rates must remain low. Economists agreed that amid an improving economy and low non-performing loan (NPL) environment, the high household debt in Malaysia is not a threat.

But some said the situation could reverse when economic growth slows down and inflation creeps in.

"These will catch up on loan servicing when households' real disposable income starts to shrink," MIDF Investment Bank economist Anthony Dass told Business Times.

The household borrowings as at end-August 2010 stood at 78 per cent of the gross domestic product (GDP), which is the second highest in Asia, except Japan.
Dass was concerned about the country's household debt level as he said it indicates that Malaysians are "over-borrowed".

"Should an adverse effect arise from household spending owing to the erosion of consumers' purchasing power or loss of confidence, or hurt from the over-borrowing, the negative spiral effect will be more significant," he said.

He said official statistics showed that total household borrowings grew at an average annual rate of 9.5 per cent to RM561.5 billion as at end-August 2010 over the past four years.

"We found that of the total debts, about 45 per cent of households' borrowings are to finance the purchase of residential properties and 20 per cent for car hire purchases," he said, adding that such levels must be reduced.

Dass was in favour of the introduction of the loan-to-value ratio for the third house to check on the growing household debt levels.

"We think the credit card (market) will also pose a potential bubble and needs tighter conditions," he said.

However, Bank Negara Malaysia's (BNM) debt counselling agency AKPK chief executive officer Mohamed Akwal Sultan said despite the household debt level, Malaysia's NPLs are not high.

This shows that Malaysians have a lot of borrowings but they are paying their loans, he said.

"If the loans against the GDP is high and the NPLs are also high, it is very bad," he told Business Times.

Akwal said healthy loan growth is good for the economy. "What's important is people are prudent in their spending," he said.

He said BNM's statistics show that the household NPL is not worrying.

As end-September 2010, the household NPL ratio, comprising passengers cars, residential property, personal and credit card, stood at 2.4 per cent compared with 3.1 per cent as end-December 2009.


Another economist said it was important to see to what extend high household debt causes systemic risk to the economy.

"It is also important to take note of the extend of lower income people over-borrowed, especially with the rising cost of living," the economist said.

BNM governor Tan Sri Dr Zeti Akhtar Aziz recently reiterated that the current household debt was not a concern as the bad loans are still low and there were various ways to keep them in check.

Source: Business Times, 6 Feb 2011