Household Debt Growth Stable, Underpinned By Strong Labour Market – BNM

KUALA LUMPUR, March 31 (Bernama) -- Household borrowings remained sound at end-2025, supported by strong debt-servicing capacity and a healthy labour market, with the loan impairment ratio stable at 1.0 per cent, Bank Negara Malaysia (BNM) said.

The share of household loan exposures under repayment assistance was broadly stable, standing at 1.8 per cent of total banking system and development financial institution loans.

“Signs of emerging stress amongst household borrowers remained limited and isolated, with no broadbased trends in missed payments across income groups, employment sectors or regions,” BNM said in its Financial Stability Review for the Second Half of 2025 released here today.

Looking ahead, the central bank said household credit risk is expected to remain stable and manageable in the near term, anchored by continued favourable labour market conditions.

Nevertheless, banks and the Credit Counselling and Debt Management Agency (AKPK) remain vigilant to signs of financial distress among borrowers and continue to offer loan restructuring assistance where needed.

According to BNM, income growth, including from the civil servant salary adjustment in January 2026, is expected to further support households’ resilience.

“While rising household incomes may contribute to faster debt expansion through improved loan eligibility, risks are expected to remain contained given the sound lending practices of financial institutions,” it explained.

Stress tests conducted by BNM also indicate that under adverse scenarios of high unemployment and inflation, some segments of vulnerable borrowers such as lower-income borrowers and highly indebted borrowers with thin financial buffers remain susceptible to financial distress.

“Under a severe labour market shock in which the unemployment rate rises to six per cent, up to 5.3 per cent of household loans in the banking system are at risk of defaulting by end-2028,” the central bank said.    

However, these potential losses remain well within banks’ excess capital buffers, BNM added.

-- BERNAMA