KUALA LUMPUR (Mar 22): The implementation of Bank Negara Malaysia's (BNM) new Guidelines on Responsible Financing, which came into effect January this year, was introduced largely to curb speculative buying in the property market and limit the increase in house prices, said governor Tan Sri Dr Zeti Akhtar Aziz.
Although reports indicated a sharp drop in loan approvals impacting the car and property markets at the beginning of the year, the governor stressed there is currently no alarm at the country's household debt level.
"We are not alarmed at this point in time because the non-performing loans have a declining trend and the loans in arrears are also on a declining trend," she said after releasing BNM's Annual Report 2011 and the Financial Stability and Payment Systems Report 2011 here on Wednesday.
As reported in the Financial Stability and Payment Systems Report 2011, the household debt-to-GDP (gross domestic product) ratio is currently at 76.6%, with household debt having grown at a slower pace of 12.5% in 2011 compared with 13.7% in 2010, indicating a more moderate growth in indebtedness.
As such, there was a declining trend in the amount of non-performing loans, loans in arrears and credit card revolving balances that grew at a slower pace of 11.9% between April and December 2011, compared with 20.3% between January and March last year.
"If a household or business can demonstrate that it has an income stream, then it should be eligible to borrow," she explained, adding that the quality of current loan portfolios is improving significantly.
Zeti said the introduction of the guidelines is to ensure that underwriting standards and management risks related to lending activities remain sound.
For instance, the central bank, through its supervisory committee, had detected institutions that were giving a single borrower 10 loans to purchase 10 housing units, which was obviously for speculative activities.
Should these individuals continue to be given loans, BNM is concerned it will effect the affordability of housing in the country.
"At this point, we will monitor the property market closely, however seeing signs that prices are moderating and supply is coming onstream, we don't expect prices to increase significantly and this is the direction we want to see," the governor said.
Zeti also expects unemployment to increase marginally to 3.2% of the labour force in 2012 from 3.1% in 2011.
The bank cautioned that borrowers with a monthly income of RM3,000 and below and living in urban centres are more vulnerable to "potential income shocks", although household balance sheets generally exhibit strong financial buffers against adverse changes in asset values, interest rates and income levels.
This is because borrowers in the low income segment have substantial debt obligations with limited buffers to counter any loss of income or price increases.
At this juncture, BNM believes that the current 3% interest rate remains accommodative although it is aware that keeping interest rates too low for too long may result in other risks to the financial system and economy. Thus the need to promote sustained growth and other wide ranging measures.
BNM announced that effective on Wednesday, its Real time Electronic Transfer of Funds and Settlement System (Rentas) has extended its real-time gross settlement services to include the renminbi as China becomes Malaysia's largest trading partner.