KUALA LUMPUR: Malaysia's household debt level is still a worrying trend despite the ratio to gross domestic product (GDP) has declined during the first half (1H) of 2021, according to economists.
They noted that the household debt had eased in terms of percentage to the GDP, but not value-wise.
According to Bank Negara Malaysia's Financial Stability Review for 1H of 2021, Malaysia's household debt to GDP had declined to 89.6 per cent from a peak of 93.2 per cent as at the end of last year (and 82.7 per cent in 2019).
The central bank, however, said the debt level remained elevated amid the sluggish recovery in nominal GDP.
Putra Business School associate professor Dr Ahmed Razman Abdul Latif explained that the percentage decline was due to the surge in GDP that Malaysia had recorded in the second quarter (Q2) of this year.
"If you look into the amount itself, I do not think the number has been decreasing. Household debt still stands at about RM1.17 trillion, higher than the federal government debt.
"The reason why the percentage has been declining is because we have seen improvement in the GDP. When the GDP increase, debt percentage would be declining. We noticed that in Q2 of the year, our nation experienced a huge jump in GDP and that is why household debt seems to be declining. But it's not.
"Malaysia's household debt level remains the highest in Southest Asia and the second highest in Asia. It is still a worrying trend," Ahmed Razman told the New Straits Times.
The Malaysian economy rebounded sharply by 16.1 per cent year-on-year in Q2, reflecting the low base from the significant decline in activity during the Q2 of 2020.
The household debt ratio to GDP could climb above 90 per cent again as the government has revised its GDP growth forecast this year to 3.0-4.0 per cent from 6.5-7.5 per cent originally.
Nevertheless, Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said household debt to GDP ratio was expected to continue to be below 90 per cent, following the expansion in the nominal GDP.
"I believe banks have been cognisant in respect to risks associated to the household debt and has remained vigilant via strict credit underwriting standards. Furthermore, the constant engagement with Bank Negara has allowed better communication in regards to the state of household indebtedness."
Afzanizam added that banks risk management had been robust and rigorous. This enabled them to have higher capitalisation and liquidity which will act as a shock absorber in the event of unfavourable macroeconomic condition.
"With that, possibilities of crisis which emanated from household debts looks fairly contained and low," he said.