BNM: Household debt continued to be driven by residential loans, debt servicing capability remained sound in 2022

• A quarter of household borrowers had DSRs exceeding 60%, and they accounted for 33.9% of total banking system loans.

KUALA LUMPUR (March 29): Household debt expanded at a faster pace of 5.5% in 2022, driven by housing loans, pointing to sustained demand for house purchases spurred by measures to encourage homeownership.

With nearly 60% of household debt made up of housing debt, risks from higher-than-anticipated default rates and sharp falls in house prices remain in focus, said Bank Negara Malaysia (BNM).

As at end-2022, the median loan-to-value ratio of outstanding housing loans remained stable at 65.5% (June 2022: 65.3%).

The growth in car loans was also lifted by higher disbursements for the purchase of vehicles during the sales tax exemption period, BNM stated in the Economic and Monetary Review and Financial Stability Review 2022 reports on Wednesday (March 29).

Meanwhile, outstanding credit card loans also recorded faster growth during the period.

“Nonetheless, the proportion of household debt attributable to consumption loans remained broadly unchanged,” the central bank said.

Bank lending to households continued to grow in the second half of 2022 to 5.9% in June 2022, while over the year as a whole, loan growth recovered close to pre-pandemic levels.

The debt-servicing capability remained sound as well, with median debt service ratios (DSRs) of newly approved and outstanding household loans remained prudent, BNM said.

A quarter of household borrowers had DSRs exceeding 60%, and they accounted for 33.9% of total banking system loans.

“Sixty-nine per cent of these credit exposures were held by middle- and high-income borrowers. Credit risks were assessed to be contained by their larger buffers available to support loan repayments in the event of financial difficulties,” BNM stated.

Impairments remained low among borrowers with DSRs of over 60%.

“Nevertheless, banks have indicated that they are increasingly vigilant of the impact of rising interest rates and higher cost of living on available household buffers,” said BNM.

It added that further improvements in indicators of household asset quality could be more modest going forward.