KUALA LUMPUR (Oct 13): Household debt grew at a moderate pace of 5.1% as at June this year, largely driven by the purchase of residential properties facilitated by homeownership incentives and the purchase of motor vehicles following the extension of the sales tax exemption and new vehicle registration period, according to the Ministry of Finance (MOF).

In the Economic Outlook 2024 report, MOF pointed out that despite moderate pace of household debt growth, the debt-to-GDP ratio increased to 81.9% as at June due to modest expansion in nominal GDP over the same period.

Total household debt was valued at RM1.409 trillion as at end-June, 2022. The growth pace of 5.1% in 2023 stated in the latest report, this translates into RM1.48 trillion — an amount that is more than federal government debts of RM1.147 trillion in 2023.

“The bulk of household debt is intended for wealth accumulation which constituted 60.3% for residential properties, non-residential properties (5.5%) and investment in securities (4.5%).

“Household financial resilience was supported by healthy debt servicing capacity and strong financial buffers. The debt service ratios (DSRs) for outstanding and newly-approved loans remained sound owing to prudent debt underwriting standards,” it said.

The MOF noted in the report that most borrowers have exited the repayment assistance programme and resumed loan payments as income and employment conditions improved.

Total loan outstanding in the household segment increased by 5.4% as at end-July.  

"Household borrowings were mostly supported by continued demand for consumption-related credit, mainly for the purchase of residential properties and passenger cars," the report said.

Nonetheless, the loan volume of loan repayments of the household segment continued to record double-digit growth, increasing further by 15% in Jan-July 2023 supported by improvements in employment and income growth.

The report also pointed out that the strong performance was also backed by ongoing support from the banking system, which provided assistance such as rescheduling and restructuring of loans, and advisory support by Credit Counselling and Debt Management Agency (AKPK) to borrowers facing difficulties meeting repayment obligations.

Meanwhile, the ministry shared that the banking sector maintained prudent lending activities amid tighter financial conditions during the first seven months of the year.

According to the MOF, growth in total loans outstanding moderated by 4.2% to RM2.056 trillion, mainly due to slower growth in the business segment.

“Financing activities in the banking system in all categories for both business and household segments such as loan applications, approvals, and disbursements expanded at a slower pace of 3.6%, 7% and 5.2% respectively.

“In the business segment, loan applications and approvals expanded by 6.8% to RM310.3 billion and 12.4% to RM183.5 billion, respectively, following the expansion in economic activity.

“However, the total loans outstanding slowed by 0.2% to RM700.1 billion due to slower growth in working capital loans,” it stressed.

Separately, the MOF also shared that banks continued to set aside adequate provisions against potential credit losses, with total provisions including regulatory reserves of RM33.2 billion as at end July this year.

Similarly, banks also continued to maintain sufficient liquidity with a healthy liquidity coverage ratio (LCR) of 154.8% and were supportive of credit intermediation activities with a stable aggregate loan-to-fund ratio of 82%.

“This was further supported by the asset quality of the banking system, which remained intact, where the net impaired loan ratio was steady at 1.1%.

“The slight increase in impairments remains manageable amid the environment of uneven recovery, high input costs and rising cost of living,” it said.

Click here to read more about the Economic Report 2023/2024.