Post date: Oct 02, 2010 12:50:4 PM
MALAYSIA’S steady economic developments and stable labour market conditions have contributed to growing affluence, continued wealth accumulation and greater demand for financing by the households.
In the recent four years, total household borrowings grew at an average annual rate of 9.5% to RM561.5bil as at end-August 2010, and accounted for 78.1% of gross domestic product (end-2006: 68.8%).
About 45% of household borrowings are to finance the purchase of residential properties, while financing for car hire purchase accounted for 20% of total debts.
On aggregate, the debt accumulation has been supported by strong financial buffers of households, with household financial assets accounting for more than two times of total debts.
The banking system’s exposures to financing for the purchase of residential properties grew at an average annual rate of 9.6% in the recent four years to RM228.3bil as at end-August 2010, and accounted for 26.9% of total banking system financing or 46.3% of total financing to the household sector.
The potential credit risk exposures from this portfolio has remained within prudent levels, with delinquent or impaired financing (on gross basis) for the purchase of residential properties accounting for 3.4% of total house financing.
The banking system capitalisation remains strong, supported by excess capital buffers of more than RM60bil, and is expected to remain above the minimum regulatory requirement, even under a severe stress scenario.
With strong capital position, banks are readily equipped and willing to proactively assist borrowers faced with temporary income and cashflow problems in continuing to service their debt obligations.
The capacity of households to adjust under more difficult economic conditions was evidenced by the stable loan quality of the banking system during the recent global financial crisis and domestic economic slowdown.
In addition, banks are subjected to maximum limit on exposures to the broad property sector.
Supported by improved credit risk management, infrastructure and processes, banks in Malaysia have strengthened capacity to manage the exposures to the broad property and household sectors.
Banks have generally continued to observe sound underwriting standards amidst increased competition, particularly in the retail lending segment. Banks’ offering of flexible financing packages has been on selective basis, taking into account the debt repayment capacity of the borrowers. Overall house prices, based on the Malaysian House Price Index, have grown rather steadily with an average growth rate of 3.4% for the period 2006 to 2009.
Some locations have nonetheless seen more rapid increases in residential property prices in the first half of 2010, driven partly by investment and speculative activities.
Such price increases may reduce the affordability of houses for the public, and contribute to imprudent debt accumulation by households.
Developments in property prices are being closely monitored by Bank Negara. If necessary, the central bank will take pre-emptive policy measures to promote a stable and sustainable domestic property market, and to ensure continued housing affordability and promotion of home ownership, as well as preserve financial stability in Malaysia.