KUALA LUMPUR: Household debt grew at a slower pace of 4.1% (June 2021: 5.5%) year-on-year as at December 2021 due to the reimposition of containment measures in the third quarter.
According to Bank Negara’s Financial Stability Review - Second Half 2021, the growth in debt was primarily driven by housing loans as households took advantage of incentives under the Home Ownership Campaign (HOC) which ended on Dec 31, 2021.
Compared to the pre-pandemic period, housing debt – generally considered to be less risky – as a share of household debt has increased.
Meanwhile, personal financing (-0.3%) and outstanding credit card debt (-1.3%) recorded declines in the second half of 2021 over the same period in 2020, in line with lower discretionary spending during periods of stricter containment measures.
Consequently, the share of consumption credit as a proportion of aggregate household debt declined further to 31.1% (December 2019: 32.7%).
Quarter-on-quarter, household borrowing picked up towards the end of the year as movement restrictions eased.
Bank Negara said the ratio of household debt-to-GDP declined to 89% on the back of stronger nominal GDP growth but remains on the higher end compared to regional economies.
Meanwhile, the central bank said bank lending to households was sustained (4.3% year-on-year growth; June 2021: 5.2%) in the second half of 2021.
About 71% of new banking system disbursements were to borrowers earning more than RM5,000 per month.
Lending standards remained sound with the median debt service ratios (DSRs) of newly-approved and outstanding household loans maintained at 44% and 35% (June 2021: 44% and 35%), respectively.
Around two-thirds of new loans approved in 2021 had DSRs below 60%, little changed from the share before the pandemic.
Overall, the share of borrowers with DSRs exceeding 60% has also remained stable at around a quarter of total household borrowers. The bulk (67%) of these credit exposures are held by borrowers earning more than RM5,000 per month who typically have larger buffers to sustain loan repayments in the event of financial shocks.
Most of these loan accounts continue to be performing with impairment levels among these borrowers remaining low at 0.7%.
It said with close to 60% of household debt comprising housing debt, risks can arise from higher-than-expected incidents of default, as well as losses in the event of default, due to the softer housing market.
This risk is assessed to be contained as households remain generally resilient against a potential decline in house prices and weaker rental market activity.
As at end-2021, the median loan-to-value (LTV) ratio of outstanding housing loans stood at 65.2% (March 2020: 66.5%), providing ample buffers for borrowers against a steep correction in house prices.
Meanwhile, Bank Negara said the take-up of repayment assistance rose sharply in the second half of 2021 to 30% of household loan accounts or 35.7% of outstanding household loan exposures 38 (June 2021: 12.8% and 16%, respectively).
It said more borrowers, across all income groups, opted for repayment assistance under the PEMULIH package given the flexible enrolment criteria which also extended assistance to those not already experiencing income loss or reductions.
Borrowers earning less than RM5,000 per month remained the main beneficiaries of repayment assistance (60% of new accounts under repayment assistance between July and December 2021).