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HOUSEHOLD DEBT STILL OK
30/09/2011
 

By JAGDEV SINGH SIDHU
jagdev@thestar.com.my

KUALA LUMPUR: Household debt in Malaysia is not a problem for the banking system and ongoing supervision and programmes are conducted to ensure it does not become an issue for the economy, said Bank Negara.

“Household debt, while it has been on a rising trend, is still within manageable levels,” said the central bank in an email response to StarBiz.
It said the low unemployment rate of 3.5% for the past 3 years had allowed households to borrow and although its borrowings over the past decade had jumped at an annual rate of 13.9% and were now 77% of GDP and 55% of total loans in the banking system, most of them were for the purchase of homes and cars.
Of the RM619.9bil in household loans, about 45% of that is to finance home purchases and 19% is for the purchase of automobiles. Loans for consumption purchases accounted for 20% of household debt.
Statistics also show that 46.5% of individuals who borrow money earn more than RM5,000 a month.

“This household group maintains strong financial buffers that allow them to absorb potential income shocks. On aggregate, the leverage position of these households is also low, not exceeding three times,” said Bank Negara.
The central bank said banks had strengthened their risk management infrastructures and practices which included more rigorous assessments of borrowers’ creditworthiness through credit scoring models and up-to-date credit information of borrowers through the Central Credit Reference Information System (CCRIS) database.
“The availability of a borrower’s repayment records also enables banks to assess repayment behaviours, including – importantly – a borrower’s willingness to repay as well as facilitating more efficient and effective credit management processes by banks,” the central bank said.
Non-performing loans of households remain low at 2% at the end of July.
The issue of household debt is not just consigned to financial institutions as other lending companies are extending lines of credit to households.

Bank Negara said it was actively collaborating with other relevant government agencies to ensure effective coordination and implementation of policies relating to the household sector.
“This includes Suruhanjaya Koperasi Malaysia, the authority entrusted to regulate the activities and operations of cooperatives in the country, to ensure that cooperatives also observe responsible standards and practices in their credit-granting activity and dealings with households, particularly in the more vulnerable lower and middle-income segments,” said the central bank.
Bank Negara will be issuing a set of guidelines to banking institutions to ensure banks continue to observe prudent underwriting standards and practices. Apart from that, the central bank introduced its POWER! programme in February to equip individuals with practical financial knowledge and skills as well as decision-making tools to make sound financial decisions.
“As at Sept 21, more than 11,400 individuals have participated in this programme nation-wide. Pre- and post-programme assessments conducted during the POWER! roadshows indicated an overall improvement in the level of knowledge and understanding among the participants.
“The programme will soon be complemented with a web-based learning module that will encompass a wide range of interactive learning tools, activities and assessments to enrich the participants’ learning experience.
“Moving forward, the POWER! programme initiative will be expanded to cover financial topics customised to the needs of the different segment of households,” said Bank Negara.



 

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