Debt service ratio

Topics: Debt, Loan, Default, Interest, Kuala Lumpur / Pages: 2 (255 words) / Published: Nov 11th, 2013
INTRODUCTION Bank Negara Malaysia (BNM) reported in its Annual Report 2010 that household debt was RM581 billion. It represents 76% of Gross Domestic Product (GDP). This scenario arises because Malaysian spend on avarage almost half of their income to pay off their debts. Only a minimum amount is left to be spent on children education, food, transport, health or even emergencies. If the breadwinner lose his job or passed away, the family will find it difficult to take over the responsibility and most of the time loans may be defaulted. The major contributor to the Malaysian household debt is housing loan. Irregardless of the interest rate, the amount to be borrowed keeps on increasing due to the rising price houses in the country. In addition financial instituition have been aggrasively competing to get more customers. While the acceptable international ratio of house price to household income is 3 to 4 times; it can sometimes rises to 5 to 6 times in kuala Lumpur and Penang. The second contributor is car loan. Car loan consumes a large part of the consumers income. It could be the Malaysian has been misguided by the concept of car ownership in which the Government encourage each household to own at least one car to support the national car. Further the situation is worsened by the bank decision to strech the loan tenor longer. In addition, the ratio of household debts to disposable income in Malaysia is among the highest in the world. Malaysian is reported to have loans which is 14 times more than his household

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