BNM: Risk of default low but 25pc of household borrowers have high service ratio
KUALA LUMPUR, March 29 — Up to a quarter of household borrowers have debt-to-service ratios (DSR) of over 60 per cent as of December last year, Bank Negara Malaysia said in its 2022 Financial Stability Report even as it noted the risk of impairment remained low.
DSR is calculated by dividing a borrower’s total debt commitment per month by total monthly income. Perbadanan Insurans Deposit Malaysia (PIDM), a government agency that insures depositors and takaful subscribers, deemed a safe DSR to be between 20 and 40 per cent of total income although lenders would generally consider borrowers with less than 60 per cent acceptable.
The number of borrowers with a risky DSR is one of four, which could be alarming. But because many are from middle to high income households, the risk of impairment remains low since these households would typically have larger buffers to meet the high loan commitments.
“As the bulk of these credit exposures are held by middle- and high-income borrowers (69 per cent), credit risks are assessed to be contained by their larger buffers available to support loan repayments in the event of financial difficulties,” it said in the report.
Loans continued to grow in the second half of 2022, up by 5.9 per cent from 5.7 per cent in June as the economy recovered from the strict containment measures meant to tackle the Covid-19 pandemic.
For the entire year, loan growth had recovered close to pre-pandemic levels, which averaged 6.2 per cent between 2015 and 2019.
BNM said credit growth continues to closely track household incomes as evidenced by the relatively stable median debt-to-income (DTI) ratio at 1.5 times. It was 1.4 times in June 2022.
“Other indicators of debt-servicing capability remained sound as well. The median debt service ratios of newly approved and outstanding household loans remained prudent at 43 and 37 per cent, respectively (June 2022: 42 and 35 per cent),” its report said.
“Two-thirds of newly approved loans in 2022 had DSRs below 60 per cent, a proportion unchanged since 2018.”