Household Debt Level - Malaysia

This newspaper article caught my eye. The Malaysian Institute of Economic Research (MIER) was commenting on the 2009 Bank Negara Malaysia (BNM) report on the level of household debt. MIER expressed their concern on the high level;
2008 - 63.9% of Gross Domestic Product (GDP)
2009 - 76.6% of GDP

(BNM Report end-August 2010 - 78.1% of GDP)

MIER suggested lowering the Loan To Value (LTV) ratio (i.e. bigger down-payment) and for the banks to do more business loans than consumer loans.

This prompted me to do some "on-line research" (Google is Your Friend!).

The Malaysia Government's Department of Statistics has an official website. The 2009 GDP for Malaysia (at constant 2000 prices) was RM521 Billion. The 2009 GDP dropped 1.7%.

For 2010; MIER forecasted GDP Growth at 6.5% and the Overnight Policy Rate (OPR - BNM's benchmark interest rate) to remain at 2.75% till end-2010.

MIER's current forecast for 2011 is 5.2% GDP Growth and OPR to rise to 3.25%.

Some points to think about:

• The Household Debt to GDP ratio of 78.1% was very high (highest in Asia - according to BNM for 2009).
  
• But What Does This Mean? The various levels of concern expressed indicated that this is BAD.
• There is Total Debt to GDP, Business Debt to GDP, and Household Debt to GDP.
• One interesting article (The Star Business 2 October 2010) gave some interesting statistics and background.
  
  In 2002, household debts were Car Loans (RM36.7 Billion), Housing Loans (RM71.5 Billion), and Personal Loans (RM1.9 Billion).
  
  In August 2010, Car Loans were RM116.2 Billion, Housing Loans were RM218.9 Billion, and Personal Loans were RM20.9 Billion.
  
  These were BIG Increases. So were we all enjoying the good life with other people's money?
  
  Wait A Minute! The total household debts listed above (end-August 2010) only totalled RM356 Billion when it was reported that TOTAL HOUSEHOLD DEBTS at end-August 2010 was RM561.5 Billion (Business Times 20 October 2010).
  
  What's the other RM205.5 Billion (RM561.5 Billion - RM356 Billion)? Don't tell me it's THE CREDIT CARD DEBTS?
• It's funny that all these articles do not analyse or discuss these car loans or credit card debts (even the BNM one switched quickly to the property loans).
  
• The article in the Star Business (referred to above) explained that as Corporates turned towards bond issuances (PDM), The Banks in Malaysia turned towards CONSUMER LENDING.
• The BIG problem with Consumer Lending (as The USA has found to its cost) is that with easy availability of debt (Banks want more and more business / profit each year), the consumer will quickly reach the point where he can't pay it all back!
  

Business Debts taken up to earn income from exports (productive investment and production) will bring in (to Malaysia) more "money" which can be used to pay the interest on the debts and increments to the workers.

Consumer Debts taken to buy consumer goods (imported) drain out the "money".

Consumer Debts taken to buy consumer goods (manufactured in Malaysia) just pass the "money" from one hand to another. There is no increase in "money" that can used to pay the interest or increments.

It's all pretty complicated, and I don't know if I have explained it fully. You can research more under "Austrian Economics". The good website to start is The Ludwig von Mises Institute.

Anyway, all the concerns mean that "they" know its best to reduce the Household Debts before non-payment start (When that happens, they will say that there was a Household Debt BUBBLE). But stopping the Debt Juggernaut is very difficult! So "small voices" start talking about restricting the number of credit cards, reducing the housing loan LTV, and maybe reducing car loans. The most effective method is to up the interest rate on all household borrowings?

The Business Times article (referred to above) quoted the MIER as saying that they were disappointed The Budget 2011 did not provide measures to address high household debts.

"Executive director Dr Zakaria Abdul Rashid described it as a key disappointment in the Budget, besides the lack of measures such as those to address property speculation ..."
Read more: 'Household debt issue not addressed' http://www.btimes.com.my/Current_News/BTIMES/articles/rup0193/Article/#ixzz12yNSS7MB

UPDATE : Here's a prediction from our Minister of Housing and Local Government, Datuk Chor Chee Hiung:

Bernama (21 October 2010) -

"Chor: No property bubble in sight"

Let's see if he is right. I like this quote "... If you find a house at RM200,000 within the Kuala Lumpur City, this means our economy is in bad shape ..."

Shouldn't it be GREAT for the Rakyat if houses do cost RM200,000 (i.e. more affordable)?

Was his remarks affected by the fact that he gave them when launching a property development?