Household debt not a worry, says Zeti

Going forward, Malaysia will implement measures to ensure it will not be a destabilising factor for the economy, says Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz


Bank Negara Malaysia is not concerned about rising household debt as the level of bad loans is still low and there are various ways to keep it in check.

The Malaysian Institute of Economic Research had noted that household debt had risen to 77 per cent of gross domestic product (GDP) last year, the highest in Asia, from 63.9 per cent in 2008.

"Right now, if we look at the non-performing loans for the household sector, they haven't increased significantly.

"So, right now, it is not an area of concern. But going forward, we will implement measures to ensure it will not be a destabilising factor for the economy," Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz told reporters on the sidelines of the Global Islamic Financial Forum 2010 in Kuala Lumpur yesterday.

One of the measures is to enhance financial literacy among youth. However, consumer groups have made calls to tighten the rules for approval of credit cards.

Bank Negara is also thinking about imposing mortgage caps although local banks appear to be reluctant over a blanket ruling. In contrast, Singapore has imposed limits on second mortgages to cool its property market. This means that buyers must use more of their own money to buy a second property.

As for the ringgit, Zeti said it has remained stable against regional currencies, which is what matters to the country as 60 per cent of its trade is with Asian nations.

The ringgit has gained some 10 per cent against the US dollar.

"We don't just look at our exchange rate with any single currency. We have the index that we monitor and, so far, the trend reflects our underlying fundamentals," she said.

The ringgit has also not been pressured by capital inflows into the region. Low interest rates in developing countries have resulted in massive money flows to emerging countries in search of better returns.

"The central bank is well positioned to undertake any sort of intervention in the market if conditions become disorderly or very excessive movements are taking place within a very short period of time. But so far, we are very pleased the market has been very orderly," Zeti said.

Bank Negara is also not too worried about rising consumer prices.

"We don't see inflationary pressure, so the interest rate is now at the appropriate level," she said.

An asset bubble is also not widespread in the country and Bank Negara has the measures and flexibility to contain it, she added.

Zeti also reiterated that the central bank will issue up to two mega Islamic bank licences and at least one will be announced before the year-end.