PETALING JAYA: The slowdown in Malaysia’s household loan growth during 2016 from 2015 is credit positive for Malaysian banks’ asset quality as it points to a slower pace of debt accumulation among households, said Moody’s Investors Service. The rating agency expects household debt to gross domestic product for 2016 will moderate from 89% as at end-2015. “In addition, the data showed an improvement in the quality of new household lending. In 2016, the growth in household loans was driven by safer housing loans – specifically, loans supported by property collateral – and which exhibited low delinquency ratios, while the growth in riskier unsecured loans remained weak,” Moody’s vice-president and senior analyst Simon Chen said in a statement yesterday. He said the continued deceleration of household loan growth will help stabilise the household leverage situation in Malaysia, which is among the highest in Asia. “Among the Malaysian banks rated by Moody’s, Public Bank Bhd (A3 stable, a3) and Hong Leong Bank Bhd (A3 stable, Baa1) – the banks with the largest exposure to the household sector – will benefit the most from further improvements in the leverage of profile of households,” said Chen. In its report on banks in Malaysia, Moody’s highlighted data released by Bank Negara Malaysia on Jan 31, which revealed that total outstanding household loans had grown 5% at end-2016. The outstanding household loans make up 57% of total banking system loans. It said that a decline in auto loan growth reflected households’ increasing cautiousness towards discretionary spending while overall household impaired loan ratio remained stable at 1.1% at end-2016, unchanged from the level at end-2015. Asset quality for residential mortgages and auto vehicle loans, which make up 55% and 19% of total household loans respectively, stayed unchanged from a year ago. However, the impaired loan ratio for unsecured loans, including personal and credit card loans, rose last year, indicating an increase in loan delinquencies and defaults among unsecured household borrowers. “At end-2016, the impaired loan ratio for unsecured loans was 1.9%, much higher than the ratios for other household loans, reflecting the higher risk nature of the unsecured household loans,” it said in its report. Moody’s said the slow growth in unsecured personal loans and credit cards had reduced the banks’ exposure to these risky loans to 12% of total household loans at end-2016 from 15% at end-2011, which is positive for the banks’ asset quality. Similar to household loans, the asset quality of the banks’ corporate loan portfolios was stable at 2.3% at end-2016. “Impaired loan ratios have either improved or remained flat year-on-year across most industry sectors, except for commodity-linked mining and manufacturing sectors, which collectively made up 8% of total system loans at end-2016, with impaired loans ratios at end-2016 higher than a year ago,” said Moody’s.