Borrowing appetite cools among Malaysian households, business loans hold up

KUALA LUMPUR: Malaysian households appear to be adopting a more measured approach to new borrowing, with loan applications and approvals declining significantly in August. However, analysts suggest this trend does not indicate widespread financial distress. Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak told Business Times that the moderation in household loan growth was relatively modest.

Nonetheless, the steeper drop in applications pointed to dwindling demand for fresh financing. Hong Leong Investment Bank Bhd (HLIB) reported that household loan growth decelerated slightly to 5.0 percent year-on-year (YoY) in August, down from 5.1 percent in July. Household loan applications shrank by 5.1 percent, reversing the 1.7 percent rise seen earlier, while approvals fell 10.4 percent, compared to a 2.4 percent decline in July.

The decline in applications was widespread, affecting vehicles, residential property, personal use, and credit cards, according to HLIB. Households may be giving themselves more time to evaluate affordability and monthly obligations before making new purchases, especially when essential expenses remain a priority. This cautious approach could actually bolster household financial resilience, according to Idham.

He noted that the primary worry would arise only if the reduced loan demand reflected households postponing necessary purchases due to excessive pressure on disposable income. The cautious borrowing trend coincides with a slowdown in household financial asset growth. Allianz Research's Global Wealth Report 2026 showed household financial assets expanded 6.2 percent in 2025, a decline from 8.7 percent the previous year.

This growth was below the 9.8 percent average for surveyed Asian countries (excluding Japan and China) and the global average of 8.6 percent. Gross financial assets reached €769 billion (RM3.56 trillion), with insurance and pensions showing the steepest growth at 11.1 percent. Securities grew 2.8 percent, while deposits increased 2.3 percent.

Even though insurance and pensions saw stronger growth, Malaysian household wealth remained predominantly in deposits and retirement savings. Deposits and savings held in the Employees Provident Fund accounted for 68 percent of total financial assets. Adjusted for inflation, Malaysian financial assets grew 4.7 percent in real terms in 2025, down from 6.7 percent in 2024.

Since 2019, they have risen 21.9 percent in real terms, lagging behind the regional average of 39.6 percent and the global average of 22.9 percent. Household liabilities rose 5.6 percent to €360 billion (RM1.67 trillion), though this remained below the growth in financial assets. HLIB reported that household deposit growth also moderated in August, easing to 0.8 percent YoY from 1.3 percent previously.

Household deposits fell 0.4 percent month-on-month for the second straight month. The softer household credit trend stands in stark contrast to robust business lending. Total loan growth ticked up to 5.7 percent YoY in August, up from 5.6 percent in July, while business lending accelerated to 8.0 percent from 7.6 percent. The uptick was driven by lending in the information and communication; electricity, gas, steam, and air-conditioning supply; and real estate activities sectors.

Idham suggested the divergence indicates that the softer household credit trend may not necessarily signal a broad-based weakening in credit conditions. For the 2027 Budget, he recommended focusing on strengthening household disposable income and financial resilience rather than encouraging more borrowing. This could involve targeted assistance for vulnerable households, measures to enhance access to quality employment and higher wages, and initiatives that lower essential living costs like childcare, transport, and healthcare.

Financial education and incentives for emergency savings could also help households build stronger financial buffers. The broader aim should be to improve households' capacity to manage existing commitments and accumulate savings, rather than stimulating consumption through additional debt or creating permanent fiscal obligations.

HLIB anticipates the 2027 Budget to prioritize measures to alleviate household burdens, including continued subsidies and increased social assistance. They maintained their 2026 gross domestic product growth forecast at 5.3 percent, implying growth would decelerate to 4.8 percent in the second half from 5.7 percent in the first half.