A Personal Finance Blog for Malaysian: National Debt & Composition of Household Debt

Thursday, March 14, 2013

National Debt & Composition of Household Debt


Do you know that Malaysia has 520 billion Ringgit of debts? 

Do you also know that the Malaysian Govt guarantees Govt-Linked Companies (GLCs) another 116 Billion Ringgit for the loans taken by these GLCs? 

That would come to 636 Billion Ringgit in total debts the UMNO-BN govt has to bear which means the rakyat has to pay in the years to come. ... 

That would also mean the total debts had exceed the 1969 legislation of the nation's debt cannot exceed 55% of our GDP. World bank report says Malaysia is one of the richest countries in the world in the past but with Malaysia now behind our former competitors namely South Korea, Singapore, Thailand, Taiwan and China, where is our destiny in the future. 

Do you also know that after BR1M 2.0, the BN govt had spent RM4billion which is also on borrowed funds? These were distributed to the rakyat in the following segment:- 
a) 40% of the rakyat earning less than RM1,500 per month, 
b) 58% of the rakyat earning less than RM3,000 per month. (Including the 40% with < RM1,500 per month) 

The biggest portion of the Malaysian household debt goes to paying off housing loans followed by passenger car loans, personal use, securities purchase, and credit cards. 

Malaysians take on increasing amount of housing loans because of rising house prices, low or negative interest rates, and speculative activities. Banks and other financial institutions have encouraged borrowing by offering low down-payment, some as low as 5% of the value of the property, while developers provide marketing incentives in the form of payment of certain transaction costs and interest- "free" financing during the construction period. 

There are strong indicators to suggest that house prices and ability to service housing loans have been overstretched in Malaysia. A ratio of house price to household income of 3 to 4 times is internationally acceptable but this ratio has risen to over 6 times and over 8 times in Kuala Lumpur and Penang island respectively. 

Next to housing loans, car loans form the second largest category of household loans. This is due to Malaysia's misguided national car policy encouraging car ownership, to support Proton at the expense of a good public transport system. As a result, ordinary Malaysians are burdened with significant car loans that consume a large part of their income. In fact, car loans are stretched over a long period to enable borrowers to pay off their loans, such that the cars become obsolete no sooner when the loans are fully repaid.