Malaysian households use almost half their income to pay off debts
CAP president S.M. Mohamed Idris said the Malaysian household debt service ratio (the ratio of the debt payments to disposable income) of 47.8% last year was higher than the acceptable debt service ratio of 30% or one-third of a household income used to pay of debt.
“After paying off the debt, there is not much left to spend on food, transport, education and emergencies.
“The biggest portion of the Malaysian household debt goes to paying off housing loans, passenger car loans, personal use, securities purchase and credit cards,” he said in a press conference Tuesday.
He added that the loans taken by each household in Malaysia was, on average, 1.4 times more than its household income.
“Looking at the problem from the ratio of household debt to disposable income, this ratio is 140.4% for Malaysia, one of the highest in the world, above that of Singapore at 105.3%, USA at 123.3% and Thailand at 52.7% in 2009,” he said.
He explained that the rising household debt restricted the government's monetary policy.
“The growth in personal consumption driven by debt, rather than by income growth, is not sustainable and will be derailed with an increase in interest rates and inflation.
“While today's non-performing loan ratio is low at 2.3%, Bank Negara should not take too much comfort in this. This ratio can easily balloon when interest rates rise and growth falters leading to household insolvency,” he added.
Idris urged the government to start a public housing policy that provided affordable housing particularly in urban areas.
“It also needs to tighten the rules on car loans as well as stop advertisements for loans and credit cards that are not transparent about the costs involved,” he said.
He added that families with high household debts would be liable to suffer from stress, depression, mental problems, suicides and possible family break-ups.
