by NUR HANANI AZMAN/ pic by TMR FILE
HOUSEHOLD non-performing loans could see a rise, but the moratorium on loan payments will prevent widespread bad debts which will hurt the banking sector.
Financial regulators implemented a six-month loan moratorium effective yesterday for all individual and small and medium enterprise (SME) loans, and restructuring of credit card balances into a fixed three-year term facility.
The move, with an estimated value of RM100 billion, will provide breathing space for borrowers. Malaysia has among the highest household debt against the GDP at about 82%.
Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff said Bank Negara Malaysia’s (BNM) move will prevent households from collapsing due to debts.
He said Malaysian household debt to GDP stands at about 82.2% (about RM1.18 trillion), higher than federal government debt and the highest among Asean countries.
“If households can no longer pay their debts, this can cause a slump in the financial sector which will bring greater repercussions to the country.
“After the Movement Control Order (MCO) ends and if the virus outbreak can be contained, it will take a few months for the economy to recover and there is a possibility that the household debts will increase if people are still looking for jobs or businesses are slow to recover,” he told The Malaysian Reserve.
According to the central bank’s classification of loans as of February, hire purchase for passenger cars accounted for RM156.2 billion, while outstanding housing loans stood at RM575.6 billion and personal loans RM69.9 billion. The three segments alone amounted to RM800 billion from the total banking system borrowing of RM1.77 trillion.
There are concerns that even 10% of bad debts from the household segment can account for RM80 billion.
Analysts said Malaysia has learned from the previous financial crisis to instal the necessary measures to prevent a repeat of the 1997/98 Asian financial crisis.
Malaysia’s high household debt is not expected to rise further as worries over the future would prevent big-ticket purchases.
Maybank Investment Bank Bhd group chief economist Suhaimi Ilias said Malaysia’s household debt impact to GDP would unlikely speed faster than the GDP itself.
He said Malaysia’s household debt level will likely stabilise at its current level of just over 80% and he is not expecting a spike in bad debts.
He said there is a growing list of financial and monetary reliefs to individuals and businesses, especially for SMEs to cope with the specific cashflow and general economic downside from the Covid-19 pandemic.
“It will curb sudden spikes and widespread loan defaults,” he told TMR.
Suhaimi said prudential regulations and measures put in place to strengthen the banking system’s fundamentals in the aftermath of the Asian financial crisis three decades ago have contributed to the system’s stability, capitalisation and profitability.
“Those measures are put in precisely to prepare and act in times like this.”
MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Yusof said the allowance for members to withdraw their savings from their Employees Provident Fund Account 2 of up to RM500 per month for 12 months will assist debt repayments.