BNM taking prudent approach in addressing high household debt risks

KUALA LUMPUR: The government, via Bank Negara Malaysia (BNM), has taken a prudent and cautious approach to addressing household debt risks to ensure that there will be no negative effects on the stability of the country’s financial system.

Deputy Finance Minister Lim Hui Ying said the government is aware of the risks associated with high household debt and among the continuing efforts taken is implementing the policy document on responsible financing practices since 2012.

She said this will ensure that individuals will borrow based on their ability to repay the loan within the agreed period to avoid excessive debt burdens.

“The second step is to increase the public’s financial literacy level through the Financial Education Network (FEN) so that people using financial services have the ability and confidence to make good financial decisions. Thirdly, related to the issue of financial literacy, is to encourage households that decide to make substantial borrowings, such as purchasing a house, to follow the Credit Counselling and Debt Management Agency’s (AKPK) online financial education programme,” she told the Dewan Rakyat at today’s question and answer session.

Lim was responding to a question from Afnan Hamimi Taib Azamudden (PN-Alor Setar), who requested the Finance Ministry state the government’s efforts and policy to reduce the country’s household debt ratio.

At the end of 2023, the country’s aggregate household debt totalled RM1.53 trillion.

A substantial portion of household debt was utilised for wealth accumulation, comprising 60.5 per cent for housing loans, non-residential properties (5.3 per cent), and investments in securities (4.3 per cent). The remaining 29.9 per cent was for spending such as purchasing cars (13.2 per cent), personal financing (12.6 per cent) and credit cards (3.0 per cent).

Meanwhile, Lim said households facing financial management and debt difficulties are encouraged to seek advice and debt repayment restructuring services from banks and AKPK.

“The government is aware that a more sustainable approach is required to address high household debt levels. Therefore, the government is implementing structural changes and reforming the domestic economy based on the MADANI Economy framework to increase the country’s competitiveness and economic performance.

“Through these efforts, the people’s income and welfare will increase, which will also assist in reducing household debt,” she added.

Lim said that currently, the government has no plans to permit households to withdraw funds from Employees Provident Fund (EPF) accounts to reduce the burden of household debt.

“At this time, we encourage anyone facing difficulties in repaying their household debt to reach out to us, especially through AKPK to resolve or restructure their financial situation.

“The government will try to help each individual, but each situation is different. We hope they will reach out to us, and we will provide the appropriate advice,” she added. – BK