Malaysia Among Those With Biggest Rise In Household Debt

Emerging market household debt has hit an estimated US$6.2 trillion, the Institute of International Finance said in a report.

The IIF estimated that the combined global household debt now stood at over US$44 trillion, and that US$6.2 trillion of a US$7.7 trillion rise in the amount since 2007 (prior to the global financial crisis), was in the emerging markets.

This equated to a rise of over 120% in these regions, to around US$3,000 per adult, according to the latest data.

These increases in the context of slowing growth in emerging economies, and combined with a sharp rise in corporate debt, has contributed to an increase in the level of problem loans, most notably in Asia, the IIF said. It added that the situation should stir regulators into action.

The three biggest rises in the household debt-to-GDP gap were in Thailand, Malaysia and China.

In China household debt to income levels have risen to nearly 60% from 35% in 2007. Virtually 90% of Chinese are homeowners – one of the highest rates in the world – and there is a concern that a steep decline in prices could hit the country hard.

In Malaysia, the debt ratio is much higher at over 145%. House prices here have risen by roughly 75% since 2007.

Meanwhile in Thailand, house prices have risen 28% since early 2008.

“Malaysia’s household sector appears quite vulnerable to what could shape up as a perfect storm,” the IIF said citing, “weakening growth, rising interest rates to defend the depreciating Ringgit and a possible correction in house prices.”

The IIF is a banking industry group comprising almost 500 banks, asset managers and wealth funds in around 70 countries.

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