PETALING
JAYA - The rise in household debts – which now stand at around RM667
billion – can lead to more bankruptcy cases as consumers are unable to
repay loans, especially during times of economic stress.
Insolvency
Department deputy director-general Haini Hassan said the top reasons
for household debts, namely housing, personal and hire purchase loans,
correlated with the top three reasons for consumer bankruptcy.
"The
order is slightly different but the top three reasons are exactly the
same; it shows a correlation between household debts and bankruptcy.
"For
household debts, according to Bank Negara, housing loans make up the
top cause, followed by car and personal loans, whereas in bankruptcies,
car loans top the list, followed by personal and housing loans," she
said in an interview with theSun.
A total of 19,167 bankruptcy cases were registered by the department last year, up from 13,855 cases in 2008.
Bank Negara in its annual report for 2011 stated that household debts to gross domestic product (GDP) ratio was
75.8%, up from 69% in 2006. Based on the revised GDP figure of RM881 billion, this roughly amounts to RM667 billion.
Of that figure, 45% of all household debts, or around RM300 billion, were in residential property loans alone.
While
acknowledging that high household debt level is a cause for concern,
Malaysian Rating Corporation Bhd chief economist Nor Zahidi Alias told
theSun that it will only really start to affect economic growth if the
ratio reached a level of 85% of GDP.
"It is not surprising to see that household debts correlate directly with consumer bankruptcy cases.
"The higher the debt level, the more likelihood of the debtor not being able to repay the debt," he said.
Nor Zahidi warned that Malaysia is at the level where it should be more
cautious about the household debt problem.
"As
we have seen from past experience, high household debt level can lead
to a collapse in consumer sector as happened in South Korea in 2003.
"For
that reason, Bank Negara has been cautious and introduced prudent
guidelines for lending in January this year to ensure that the problem
can be contained in the next few years," he said.
Among
the measures put in place included tighter lending guidelines for
banks, including using net income calculation method instead of gross
income when computing the debt-service ratio for potential borrowers.
The number of bankruptcy cases in Malaysia has shown an increasing trend for the past few years.
Minister in the Prime Minister's Department Datuk Seri Mohd Nazri Abdul Aziz told Parliament
on June 14 that between 2005 and April this year, the Insolvency Department saw 116,379 people being declared bankrupt.
Besides
the three reasons for bankruptcy, social and corporate guarantors as
well as business loans and credit card debts made up the other major
causes of bankruptcy.
Haini said the reasons for the increase in bankruptcy cases were varied.
"Sometimes
there is mismanagement of funds, but with the recession, there has been
loss of employment or the effects of recession that weren't foreseen.
"The
effects of recession only start to show after a year or so," she said,
adding that it was the lower income group who would be most vulnerable.
Haini advised people to always spend within their means, and set aside savings before thinking about spending or
taking out loans.
"The
important thing is to work with your disposable income figure in mind,
not your gross income, as that can be misleading because there are
financial obligations," she said.
Haini
also urged people who genuinely cannot service their loans to come
forward as there is better protection for registered bankrupts under the
law.
Once
a bankrupt under the law, the Insolvency Department becomes the
bankrupt's trustee and facilitates payment to the creditors, meaning the
debtor cannot be harassed, she said.
-thesundaily
