Debt Repayment For Households & Businesses Still Strong


As long as banks continue to uphold strong lending criteria, households and companies can continue to make payments on their loans.

The household debt-to-GDP ratio is still constant at 81.9 percent, according to Bank Negara Malaysia’s Financial Stability Review First Half 2023, which is supported by growth in income and employment.

While banks maintained strong lending criteria, the median debt-to-income (DTI) ratio for all consumers had been generally steady at 1.4 times. There have also been indications of limited additional hazards in other metrics of household debt repayment capacity.

In order to maintain sound loan servicing buffers among families, the median debt service ratios (DSRs) for newly granted and outstanding household loans remain conservative at 42% and 36%, respectively.

Stage 2 household loans, often known as higher risk and default-prone loans, made for 6.7% of all household loans as of December 2022 but have since decreased to 4.6% of total household loans (or 2.7% of loans made by the banking sector).

In a statement released today, BNM stated that banks are continuing to be wary of risks related to rising borrowing prices and the behaviour of borrowers who are leaving repayment assistance plans offered during the pandemic.

Any decline in household borrowing quality is anticipated to stay well within the banking system’s current capital and provisioning buffers.

In the meantime, BNM reported that despite a significant increase in domestic company activity, overall business credit impairments remain modest at 1% of all loans in the banking system.

Related link: Bank Negara Malaysia: Domestic Demand Will Be Supported By Employment Market

However, the pace of recovery is still unequal, with several industries still struggling with high input costs and weak external demand.

At 2.1% of all loans made through the banking system, the proportion of small and medium-sized firm (SME) loans with higher credit risk (designated as Stage 2) is still negligible.

To 5.5% of all SME loans (or 0.9% of all loans from the banking system and development financial institutions) the proportion of loans with repayment assistance has further decreased.

The majority of SMEs who have left repayment assistance initiatives have been able to continue making their loan payments.

According to BNM, firms will likely continue to experience challenges including high expenses and sluggish external demand.

Additionally, it is more likely that firms will take climate-related risks and possibilities seriously.

However, because of increases in corporate leverage, strong cash reserves, and more adaptable business structures, it is anticipated that the majority of businesses will be able to endure potential new shocks.

Banks, according to BNM, kept up solid liquidity buffers.

At 154.4% and 117.0%, respectively, the aggregate liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) remained considerably over the statutory requirement.

The LCR encourages a banking institution’s liquidity risk profile to be resilient over the short term (30 days), whereas the NSFR seeks to lower funding risk over a time horizon of up to one year.

With capital buffers of RM138.5 billion above the required minimum, the total capital ratio was 18.5% at the end of June 2023.

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