Household debt growth slows

by **Cals** Thu 20 Mar 2014, 08:20

[size=33]Household debt growth slows[/size]

Posted on 20 March 2014 - 05:39am

[You must be registered and logged in to see this link.]

[size=14]PETALING JAYA: Aggregate household borrowings growth slowed down to 11.7% or RM854.3 billion, in 2013 thanks to measures introduced since 2010 to rein in the excessive accumulation of debts by households.

Bank Negara Malaysia (BNM) said this was the lowest growth compared with 13.5% for 2012 and also 2011, and 15.1% in 2010.

According to the Financial Stability and Payment Systems Report issued yesterday, this lower growth was driven primarily by the substantially slower pace of expansion in lending by non-bank financial institutions (NBFIs), particularly in the second half of 2013.

"The aggregate balance sheet of households remained healthy, with stable employment and income conditions throughout the year, lending continued support to the financial strength and debt servicing capacity of households at large.

"Household financial assets expanded at a closer rate to the pace of growth in household debts, compared to previous years," it said.

In 2013, household financial assets grew by 11.2% (2012: 12.7%) to RM1.9 trillion or 193.5% of gross domestic product (GDP), BNM said .

The composition of household financial assets was broadly unchanged with 42% of financial assets held in the form of deposits and deposit-like instruments.

Investments in shares and unit trusts expanded slightly to account for about 25% (2012: 24%) of financial assets.

The central bank pointed out at the aggregate level, the ratio of household financial assets to debt remained stable at 2.2 times.

However, the level of household indebtedness increased to 86.8% of GDP at the end of 2013 due to slower growth in nominal GDP of 4.5% (2012: 6.4%).

Nearly 60% of lending to households were for the purchase of properties and investment in equities and unit trust funds which added to household wealth.

It said the incremental measures introduced since 2010 to curb excessive indebtedness resulted in reducing the vulnerability of lower income households and prevented households in general from becoming over-leveraged.

This resulted in the proportion of households with monthly earnings of up to RM3,000 accounting for a significantly lower share of total household borrowings at 27% (2012: 33%) or RM230.7 billion (2012: RM252.5 billion).

"Although aggregate leverage for households earning up to RM3,000 a month was stable at about seven times (measured as the ratio of outstanding borrowings to annual income), the level remains high.

"It would be prudent to reduce the level of leverage for this group of borrowers to increase their buffers against income or expense shocks. In other income categories, while the leverage is considerably lower, it is equally important for these households to manage their leverage position," it said.

As household debt may likely remain relatively strong in the foreseeable future, BNM said it is important that continued emphasis on sound lending discipline and affordability assessments by financial institutions be maintained.
[/size]