KUALA LUMPUR: Fitch Ratings expects Malaysia's household leverage to continue to moderate, which should support the banking system's asset quality.
Fitch, however, said pockets of vulnerability remained in banks' exposures to lower-income households and personal loans.
The ratings agency said the household sector accounted for roughly 58 per cent of bank gross loans, about 37 per cent of which is to lower-income borrowers (those earning up to RM5,000 a month).
“Such borrowers often have limited asset buffers to mitigate the risk of default, and while banks' exposures to them tend to be secured, loan-to-value (LTV) ratios can be high, weakening recovery prospects,” it said in a statement today.
Fitch said about 28 per cent of banks' overall home loans had LTV ratios over 80 per cent.
“Household incomes remain key to supporting their debt service capacity and broader economic activity.
“In this respect, unemployment - as a driver of household income - has been resilient in previous economic cycles, and we expect it to remain the case in the near term,” Fitch said.
The banking system's common equity Tier 1 ratio of about 13.5 per cent at end-April 2019 also suggested healthy loss-absorption capacity in the event of potential stress, it added.
Fitch believes that bank lending standards for households had remained broadly steady since the regulator's tightening measures over 2010-2013.
“We expect this discipline to continue, but we remain watchful for any significant easing in standards that could cause risks to accelerate once more,” it said.