Malaysia's household debt-to-gross domestic product declined to 84.3% last year from 88.3% in 2016 driven by stronger performance of the domestic economy and improvement in underlying trends in debt accumulation by households.
Bank Negara Malaysia (BNM) said the growth of unsecured borrowings in the form of personal loans has been sharply lower, down to 2.5% last year from 25.2% in 2008, and the debt servicing ratios of most households remained within prudent levels.
It said the growth in household financial assets outpaced that of debt for the first time since 2012.
"The growth in household borrowings moderated for the seventh consecutive year and is now more in line with income growth," BNM said in its Financial Stability and Payment Systems Report 2017 released today.
The central bank said the banking sector's profitability continued to improve, albeit the lower household income level, reflecting the slower growth in interest expenses and higher fee-based income from financing-related activities and stockbroking activities.
"Outstanding financing by banks grew 4.1% to RM1,584.4 billion in 2017, driven mainly by financing to households and small and medium enterprises (SMEs). In particular, growth in financing to SMEs remained healthy at 6%," it said.
On insurance and takaful, the central bank said, the sector maintained positive growth underpinned by strong overall capitalisation but penetration rate for life insurance and family takaful remained low, increasing only marginally over the last four years.
"Unsurprisingly, penetration is lower in the Bottom 40% household segment with only 30.3% owning a life insurance or family takaful policy," it said.
On cross-border development, BNM said, Malaysia's debt securities market continued its upward trajectory last year, growing 10.1% to RM1.3 trillion, or 97.6%, of gross domestic product (GDP).
"Bond yields, despite more volatile capital flows, remained relatively stable, owing to the active participation of domestic institutional investors," it said.
It said following the series of measures introduced by the Financial Markets Committee since December 2016, onshore foreign exchange liquidity has improved considerably with average daily trading volume in the onshore foreign exchange market increased to US$9.9 billion, up by over 20% from 2016.
"The transaction volume of the ringgit non-deliverable forward market has contracted by 70% since November 2016," it said.
It added that the more flexible hedging framework has also resulted in increased foreign exchange forward transactions by non-resident institutional investors.
Meanwhile, on payment and settlement systems, it said, the system remained resilient and operated without any major interruptions throughout the year.
It said as part of BNM's drive towards a cashless society, measures have been actively implemented to correct price distortions, enable a greater degree of competition, and establish market incentive structures to promote innovation and investments in payments infrastructure.
Going forward, BNM said, it would focus on initiatives to promote mobile payments to complement debit cards in displacing cash.
"An area of primary focus will be the operationalisation of the Interoperable Credit Transfer Framework (ICTF).
"By ensuring fair and open access to a shared payment infrastructure by banks and non-banks, the ICTF is envisioned to drive greater competition, spur the development of innovative payment services to cater to the needs of different customer segments, and foster greater financial inclusion," it said.
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