Spotlight turns on credit quality of home loans In Malaysia, Says S&P

KUALA LUMPUR (April 23): Property price increases in Malaysia in recent years have placed the credit quality of home loans in the spotlight, said Standard & Poor's Ratings Services.

In a report entitled "Rising Property Prices Could Expose Vulnerabilities In The Malaysian Banking System” released on Tuesday, S&P said a resilient economy and low mortgage rates have spurred buyer demand.

With supply growth lagging behind the rise in demand, price increases have accelerated, it said.

S&P credit analyst Ivan Tan said that although home loans form the largest segment in banks' loan portfolios, the credit losses facing Malaysian banks from housing exposures are likely to remain limited.

"The pace of loan growth has generally been in line with the overall loan growth, and does not suggest a property bubble developing in the country,” said Tan.

Tan said a few factors would support borrower repayment ability in Malaysia.

“One is the resilient economy. With that comes low unemployment. The prevailing low interest rate environment also is a factor.

“In addition, household indebtedness levels have remained relatively constant even as property prices have gone up, suggesting that household borrowings remain broadly in line with rising household incomes and stable employment,” he said.

Tan however cautioned that those earning below RM3,000 had weaker financial buffers.

“In an economic downturn, these borrowers are more vulnerable to rising unemployment. They are also more at risk when interest rates increase.

“That said, the Malaysian government is aware of the growing risk from household debt and rising home prices and has taken steps to address weak links in the system,” said Tan.

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