Malaysian banks feel borrowing strain of $234 billion household debt
Low income borrowers make up 37% of household loans.
Banks in Malaysia are shouldering $234.10b (MYR972b) heavy burdens in household exposure accounting for 58% of total loans, according to a Fitch Ratings study.
While family borrowing only rose by 4.7 per cent in 2018 from 4.9 per cent in 2017 and 9.4 per cent in 2014— a rate faster than nominal GDP development— to stabilise by the close of the year at 83 per cent of domestic production, the situation remains vulnerable, particularly with lower-income borrowers threatening the stabilising credit situation.
Those earning up to $1,204 (MYR5,000) a month account for 37 per cent of household loans from banks and non-banks an even higher proportion.
“While banks’ commitment to such borrowers tends to be guaranteed (homes, motor or other), loan-to-value ratios (LTV) can be large, strengthening debt restoration opportunities. Approximately 28 per cent of home loans from companies have LTV proportions above 80 per cent,” the company said in a study.
Also, personal loan impairment proportions stay higher than five years earlier (1.8 per cent; all household loans: 1.0 per cent) and in latest years have been a growing source of bankruptcy.
The central bank reports that a ten fold decrease in household income could increase bank credit losses by $11.56b (MYR48b), which tops the $8.91b (MYR37b) 2018 industry pre-tax profit, compared to a sum of $68.64b (MYR285b) equity at the end of April 2019. “Lower incomes would lower consumption and development of GDP, expanding future declines,” Fitch Ratings observed.
However, household leverage is projected to decrease further as the economy expands and strong bank capitalisation with big capital Tier 1 proportion: a small buffer against rising downside hazards will be provided by 13.5 per cent at the end of April.