Bank Negara: Low savings make some borrowers increasingly vulnerable

While the household debt to gross domestic product (GDP) ratio has fallen to 81.2 percent (84.5 percent in June 2022) due to nominal GDP growth, the low savings of some borrowers put them at risk, according to Bank Negara.

In its Financial Stability Review for 2H 2022, Bank Negara cautioned that increasing vulnerabilities are emerging among household borrowers that are highly leveraged and have limited financial buffers.

“For example, 51.5 percent or 6.67 million Employees Provident Fund (EPF) members under the age of 55 have extremely low savings of less than RM10,000 in their EPF savings accounts,” it said.

Bank Negara also cited a survey by RinggitPlus in 2022 which revealed that 63 percent of the 3,144 respondents indicated they could only survive three months or less with their savings, compared to 50 percent in 2021.

“This is due largely to the composition of their (borrowers’) debt, as half of total household loan accounts are on fixed-rate terms which do not fluctuate with changes in the overnight policy rate (OPR),” it said, noting that 65 percent of at-risk household borrowers earn below RM5,000 per month.

Economy expected to grow 4-5pct

Bank Negara also released its Annual Report 2022 and Economic and Monetary Review 2022 (EMR 2022) today.

The EMR 2022 projected that in 2023, the global economic environment is expected to remain challenging and uncertain.

"Slower growth and tighter monetary policies in major economies and subdued global trade activity are expected.

"Despite global headwinds, the Malaysian economy is projected to grow between 4.0 to 5.0 percent in 2023, supported by firm domestic demand.

"Further improvement in labour market conditions, continued implementation of multi-year investment projects and higher tourism activity are expected to support private consumption and investment growth," read the report.

Both headline and core inflation are projected to average between 2.8 percent and 3.8 percent in 2023. Inflation is expected to moderate, driven by the lower prices of key commodities.

However, the outlook for inflation in 2023 remains tilted to the upside. Upside risks include worsening geopolitical conflict leading to higher commodity prices, extreme weather conditions, stronger-than-expected demand from China and higher input costs due to exchange rate developments.

Cross-border linkages intensified

The annual report details the key initiatives of the Bank in 2022 to promote monetary and financial stability conducive to the sustainable growth of the Malaysian economy.

It also said that Bank Negara continued to work closely with industry partners to reduce barriers to e-payment adoption and promote the responsible and safe use of e-payments, including through e-Duit campaign.

"Bank Negara intensified efforts to establish cross-border payment linkages with Indonesia, Philippines, Singapore and Thailand to enable more convenient, safe and cheaper cross-border payment services.

"Bank Negara also pioneered the world’s first transaction-based Islamic benchmark rate developed in accordance with the international Principles for Financial Benchmarks. The introduction of the Malaysia Islamic Overnight Rate (MYOR-i) will encourage greater Islamic financial product innovation and increase price transparency for Islamic financial contracts," it said.

Bank Negara said it will continue to collaborate with the government and financial industry to heighten efforts to combat online financial scams, increase the public’s awareness of scam prevention, and ensure that emerging cyber threats are effectively managed.

Cross-border cooperation to better detect, trace and recover funds for victims through the Financial Intelligence Consultative Group of 12 member countries will also be strengthened.

"The bank has made significant progress throughout the year to address climate-related risks.

“The focus has been on strengthening the financial sector's climate resilience, scaling up financing and protection support for businesses to reduce their carbon footprint, and advancing research to better understand how climate and nature interact with the financial system and economy.”

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