Friday March 22, 2013
Household indebtedness may be on uptrend
By NG BEI SHAN
PETALING JAYA: Household indebtedness can potentially be on an uptrend, based on the rate of household loan growth, which is outpacing nominal gross domestic product (GDP) growth.
An economist told StarBiz that the household debt-to-GDP ratio could potentially rise in 2013, premised on the growth of household loan at 11% which was higher than the nominal GDP growth at 7.8%.
He said the 11% growth was based on the assumption following the January household loan growth figure of 12%, while the 7.8% nominal GDP growth for 2013 was based on his estimation.
Household indebtedness rose further from 75.8% in 2011 to 80.5% in 2012.
In a recent note, RHB Research analyst David Chong said although household borrowings declined marginally from 13.4% in 2011 to 13% in 2012, it beat the nominal GDP growth of 6.4% last year.
The economist added: “The central bank has delved into risks (that could arise) in most of the areas, and is working with players to ensure that they lend responsibly.”
He said the bulk of personal finance growth was seen in the non-bank financial institution segment, and that the rate could be contained if they became more conservative.
As for potential risks of this high ratio, he said it would be an unexpected spike in interest rates and a paycut for civil servants, which he deemed as unlikely to happen in the near term.
Chong opined that it was unlikely that Bank Negara would introduce further tightening measures for now. “The new Financial Services Act will further expand Bank Negara's reach to entities that it does not currently regulate and is potentially a game-changer ahead,” he said.
He noted that the new legislation, which would come into effect in mid-2013, would empower Bank Negara to impose regulations on entities that were currently out of its coverage.
“We do not discount the possibility that Malaysia Building Society Bhd (MBSB) could be brought under the purview of Bank Negara at some point. However, we highlight that MBSB has been taking proactive steps to close the gap with current banking practices, which suggest that management themselves are preparing for such a possibility,” he said.
A banking analyst added that the new legislation would enable the central bank to have provisioning over non-bank financial institutions compared to the existing legal framework.
“Bank Negara can also respond to any possible volatility in these financial institutions more quickly, so we are positive on this act, although we expect the impact to be seen not so soon,”
Commenting on the 23.4% loan growth seen in non-bank financial institutions compared to 11.6% recorded by banks, he said it could be a result of a low-base effect from the non-bank financial institutions.
Going forward, he expected non-bank financial institutions to continue to outpace the banks, although the rate could be lower from the high-base effect this year.