Economic Highlights : Key Highlights From Bank Negara Malaysia’s 2009 Annual Report Briefing -25/03/2010

Household debt rose from 63.9% of GDP in 2008 to 76.6% in 2009 (see Chart 1). This was due partly to the effect of a lower denominator as GDP contracted in 2009. Bank Negara, however, was not alarmed by the sharp rise given that NPL ratio of household loans dropped to a low of 3.1% in 2009, from 4.1% in 2008 and 8.1% in 2005, indicating that asset quality remained sound (see Chart 2). In addition, the Central Bank has set up a debt negotiation agency (Credit Counselling and Debt Management Agency) to help orrowers to deal with late payments and financial difficulties, while banks could easily check borrowers’ borrowing status before granting them any new loans through a data system set up by the Bank Negara to capture all outstanding loans. Bank Negara also believes that banks should have the capacity and capability to manage risks associated with rising household debts. Besides, almost half of the household debts (46.2% in 2009) were concentrated in long-term secured borrowings to fund house acquisitions, in line with Malaysia’s young population structure and rising new family formation. In our view, however, this implies that household disposable income could be affected somewhat in the near term if interest rates are to be raised. Indeed, the increase in household debt resulted in the increase in total household debt-to-personal disposable income from 114.9% in January 2009 to 136% in December, according to the Central Bank.

Economic Highlights :Key Highlights From Bank Negara Malaysia’s 2009 Annual Report Briefing- 25/03/2010