Top 20 income group has largest share of debt, says Bank Negara

The largest share of debt, about 40 percent, is owed by individuals in the top 20 income group who earned over RM8,000 a month, says Bank Negara Malaysia (BNM).

In its 2016 Financial Stability and Payment Systems Report released today, BNM said the average debt level for borrowers in this group was more than double that observed for other borrower groups.

"The debt servicing capacity of this group is reasonably healthy as indicated by more prudent debt service ratios.

"Relative to other income segments, a large share of this debt is secured, with about 77 percent of debt taken out for the purchase of properties and principal-guaranteed investments which contribute towards individuals’ wealth accumulation," it said.

Borrowers in the more vulnerable income segments in the bottom 40 income group, earning less than RM3,500 a month, accounted for only 11.4 percent of total debt.

However, they were more likely to face difficulty servicing their debt in the event of a payment shock, given thinner buffers.

BNM said about 53 percent of borrowings by this group remained sensitive to changes in interest rates, which could have a disproportionate impact on debt repayment capacity given the low absolute income levels.

The report highlighted that about two-thirds of total debt was acquired by those living in major employment centres, namely Selangor, Johor, Kuala Lumpur and Penang.

"A significant portion of debt is for the purchase of residential property, followed by debt for vehicle purchases and personal use, corresponding to the need for greater mobility and higher expenditures associated with raising young families and urban lifestyle choices," it added.

- Bernama