Thursday, 11 October 2012

Monitor Household Debt

The increasing household debts need the attention from Bank Negara Malaysia (BNM) to monitor the household debts in control and do not affect to the economic activities. In 2011, the ratio of household debt for Gross Domestic Product (GDP) reaches 77 percent rather than 69 percent in 2006.
Apparently, Malaysia’s households were reported that RM653 billion in accumulated and each household in debt RM108000. In the perspectives of Bank Negara Malaysia (BNM), even though the numbers is big in this region but it was under control.
Furthermore, the household debts are mainly because of owning houses and cars in conjunction with the enhancement of salaries and wages of household. The enhancement per capita income from RM15,169 12years ago to RM31,000 in nowadays affected to the purchasing power to goods and services.
Household debt to gross domestic product (GDP) ratio is expected to further balloon by 1 to 3 percentage points from its current level of about 78% if the external headwinds continue and impact the growth of the domestic economy.
The rise in household, debt analysts said, could impact banks' profitability with the recent Bank Negara's guidelines to contain surging household debt with stricter policies for loans and credit cards, hence restricting overall loans growth.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said that, the ratio to the country’s output, Malaysia’s household debts will likely remain high or increase slightly in 2012, especially if nominal GDP fails to increase due to general slowdown in the global economy.
Borrowings from banks accounted for 84.2% of total household debt in 2010. In the first 10 months of this year, banks' lending to the household sector grew by 12.6% to RM540.5bil. A banking analyst from MIDF Research added that he expected household loans to trend downwards with Bank Negara's stricter guidelines on credit cards and new lending guidelines that required banks to use net income to calculate the debt service ratio for loan approvals.

The main problem for this issue is the awareness of the society to choose between their need and want. From the article’s summary, we can see that the main factor for household debts is because of their debt to own house and car. It is also about the price of the house and car itself. Nowadays we can see that these two things are the main materials to be possessed and the demand for these things are increasing but at the same time the price is also increasing. Households often prefer to purchase houses and cars that provide a flow of services over several years rather than rent it.
In the government perspective, they need to have initiative such as to decrease the price of houses and cars. Or maybe government can increase the salaries and wages to increase the purchasing power and ability to the household to settle their debts.
For the financial institution, the interest rate can be decrease to ease the household to pay the interest. We know that with the high interest rate will burden for the borrower because they did not only pay the interest but they need to pay the assets that the purchase. They also can stricter guidelines for new borrower to borrow some money to control the capability the borrower to settle their obligations.
On the other hand, the society needs to choose rationally before make the decision to purchase something between needs and wants. One of the factors that lead the society borrowing is the trend such as to have big houses, expensive cars and updated gadget. From this trend, they do not think wisely before make the decisions.
In conclusion, the declines in household consumption and real GDP are substantially larger, unemployment rises more and the reduction in economic activity. From this situation, recessions will affect the household debt to increase. In the future, there should be more business loans than household loans because with the increase in business loans will contribute to our economic growth. Due to the fact, there are many job opportunities to the society and will lead to increase the purchasing power. The stability of economic growth is depends on the purchasing power and demands.

This is from my perspectives for this issue. Maybe wrong or maybe right. Anyone can criticize and comment for this entry because I not an expert but try to become expert to contribute something to Islam. Thank you.