KUALA LUMPUR: The high level of household debt in a number of Southeast Asian (SEA) countries poses a risk for private consumption growth and banks’ asset quality, but is ultimately manageable, Moody’s Investors Service said.
Moody’s: High household debt level still manageable for SEA
“While elevated household debt could place refinancing pressure on mortgage and consumer credit as the global credit cycle gradually tightens, SEA bank systems are largely sound and can withstand significant asset deterioration,” said its vice-president and senior research analyst Rahul Ghosh.
“In addition, if these stresses begin to affect the wider economy, regional governments could implement counter-cyclical policies to support domestic demand,” he said in a statement today.
With the United States’ Federal Reserve likely to raise rates in 2015, capital inflows into SEA would moderate, said Moody’s.
It added rapid growth in consumer credit has led to several pockets of high household leverage.
Malaysia and Thailand were the most vulnerable to rising rates due to high overall indebtedness and a rapid pace of credit accumulation in recent years, it noted.
Moody’s said household debt as a share of gross domestic product (GDP) was high for both, at 87 per cent for Malaysia and 82 per cent for Thailand as of end-2013.
In addition, household debt relative to income levels in the two countries had elevated, suggesting that debt-servicing capacity in both was likely to become problematic as credit conditions become less favourable, said the rating agency.
“Still, regional banking systems show strong internal defences; high capitalisation levels, robust profitability and low reliance on wholesale funding will protect SEA banks as the economy changes,” it added. — Bernama