KUALA LUMPUR: Economists have sounded the alarm after Malaysia's aggregate household debt surged to RM1.53 trillion last year, saying it can lead to macroeconomic instability if it continues to rise.
The latest figures, disclosed by the Finance Ministry, underscored growing concerns about the country's household debt burden and its implications for economic stability, they added.
"This is very alarming as increasing household debt will reduce people's disposable income and eventually force them into bankruptcy," Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said yesterday.
He said the government could address the high debt level by implementing various policies and measures.
"First, the government can introduce stricter lending criteria to ensure that loans are only granted based on borrower's ability to repay. Second, it can enhance financial literacy programmes to help consumers make informed decisions about borrowing and managing debt.
"Third, it can offer programmes to assist households in restructuring their existing debt to more manageable levels. Fourth, it can provide initiatives to promote savings among the population so that they will rely less on debt for financing.
"Lastly, the government can tighten regulations on non-bank credit facilities, which often contribute to high-interest personal financing debt. This includes shadow banking services, such as those conducted by loan sharks.
"All these measures can help mitigate the risks associated with high household debt levels and promote a more stable and healthy economic environment for the country."
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the RM1.53 trillion household debt level was "quite at an elevated level" and one of the highest in the region after South Korea, whose household debt-to-gross domestic product (GDP) ratio stood at 108.12 per cent in 2022.
"Despite that, banks have been vigilant in their credit risk assessment which resulted in the gross impaired financing ratio for household related financing remaining fairly stable," he said.
UCSI University associate professor of finance Dr Liew Chee Yoong said this level of indebtedness posed significant risks and consequences for the country's economy, with several key factors at play.
Liew said the high household debt could contribute to macroeconomic instability if the debt level continued to rise and the situation was not controlled.
"This situation is indeed very alarming considering that the country also encounters other economic problems simultaneously such as the depreciation of the ringgit and increased cost of living over time," he said.
He said the government was considering several policy measures to address the issue. This included stricter lending criteria, organising more financial literacy programmes and tightening regulations on non-bank credit facilities.
The government should also offer more programmes to assist households in restructuring their existing debt to more manageable levels.
"The government should tighten regulations on non-bank credit facilities, which often contribute to high interest personal financing debt. This includes shadow banking services such as those by loan sharks.
"All these measures can help mitigate the risks associated with high household debt levels and promote a more stable and healthy economic environment for the country," he said.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said the recent data did not indicate significant risk, particularly in terms of financing and repayments of personal loans.
Williams said the main risk was in financing and repayment of personal loans as housing loans were backed by the collateral of the property and car loans were somewhat backed by the collateral of the vehicle.
"It is only the personal loans that would have low collateral and so would be issued based on the borrowers' capacity to repay from their income.
"The risk is that if incomes are low and disposable income is squeezed by the cost of living then repayments might falter," he added.