The Malaysian Institute of Economic Research (MIER) is concerned with the rising household debt level which stood at 77 per cent of Gross Domestic Product (GDP) last year.

In Bank Negara Malaysia (BNM)'s 2009 annual report, household debt was reported to have risen to 76.6 per cent for the year, the highest in Asia, from 63.9 per cent of GDP in 2008.

"Loan-to-value (LTV) ratio should be reduced to address the rise," said Senior Research Fellow Dr Foong Kee-Kuan.

"Going forward, there should be more business loans than household loans. More business loans will contribute to our growth," he said. The concern was highlighted during a media briefing on the Malaysian Economic Outlook report released here today.

Quoting the central bank's Banking and Monetary Indicators report, MIER said household loan in April, May, June, July and August this year stood at 10 per cent, 11.7 per cent, 12.5 per cent, 11.9 per cent and 11.8 per cent respectively.

"Our household debt level is a concern and no measures were mentioned to address this in the Budget 2011.

"If this scenario continues along with slower economic growth, it can translate into unemployment and lead to people having problems in servicing their loans," he added.

He said although lowering LTV would not be favourable for the banking sector as it would reflect in revenue, the escalating household debt must be addressed to prevent risk in future.

In its report, MIER said it was anticipating the OPR to be steady at 2.75 per cent until end of this year. "This along with reduction in mortgage LTV ratios and tighter credit card conditions would address the rising household debt problem," it cautioned.

The OPR would trend higher to 3.25 per cent in 2011. In a recent research note, Kenanga Research had also said the central bank should consider imposing tighter borrowing limit for the property sector to avert potential over-leveraging on the household segment and speculations.

It suggested that bank loans should be lowered to between 70 and 80 per cent value ratio for a third mortgage. — Bernama


SOURCE: Business Times