Property prices are falling (some people talk about it, some people shout about it). Well, here’s something else which is also falling; household debts Malaysia vs GDP. Both should be positive news. Property prices falling may have brought down the cost to own a property and thus household debts are falling too. What is household debt? Briefly, if we earn a salary but we did NOT buy anything which requires a monthly instalment, we do not have any debts. However, most Malaysians have cars, expensive smartphones and some actually bought properties. Thus, on an average basis, Malaysian households have household debts which is are at 83.8% to the GDP.
Article in TheMalaysianReserve here. It says that household debt is still high but has dropped from 83.8% as at end 2017 to 83% as at end 2018. Biggest contributor to household debt is STILL residential property. (Please feel good about it this because if it’s not housing but it’s personal loan for example, we are doomed). BNM says that households remained well-places to manage debt repayments and this is because of income and employment growth while ratio of household assets-to-debt remained at 4 times. (Yes, ASSETS are 4 times the debt…) Beginning in 2010, BNM have guided banks to lend more sustainably. Personal financing (PF) growth is actually rapidly increasing but this has since moderated and PF is now at 14.5% vs GDP currently (2018) even though it was 16.4% in 2013.
BNM did a sensitivity analysis that simulates income, cost of living and borrowing cost shocks on borrowers’ financial margin (FM) — potential losses to the banking system from borrowers with a negative FM are estimated to remain within banks’ excess capital buffers of RM143.1 billion as at end-2018. (Briefly, banks remain strong and they have buffers against sudden shock to the financial system) House prices are STILL rising but has been on a downtrend in terms of increase. It was 4% in the first half of 2018 and as at Q3 2018, it has moderated to 1.1%. Article in TheMalaysianReserve here.
We could choose to believe the politicians or we could choose not to but thus far, I believe in BNM enough to trust their assessments. From the numbers announced, it seems that we (Malaysian households) may be at a precarious situation for the household debt vs GDP but it does seem that the number is decreasing while the banks remain sufficiently covered just in case many of their borrowers has some sudden shocks with their financial standing. For example, the loss of job for a couple of months. Well, all these numbers are released on a periodical basis. Let’s hope that it moderates even further but long term deflation is NOT a good thing yeah. Happy following.
written on 31 March 2019
Next suggested article: Sometime back: Loan rejection is ok, no need to ease lending.