Malaysians use credit cards more and borrow more

CREDIT card usage in Malaysia appears to have increased in recent months as consumers return to their pre-pandemic lives. Data from Bank Negara Malaysia shows that outstanding credit card balances rose for the third consecutive month to RM35.89 billion in July – the highest since February 2020, when the balance stood at 38.05 billion RM.

This is an indication that consumers are loosening their purse strings to spend more. Additionally, the inflationary pressure that has led to higher prices is also contributing to higher spending.

The total consumer credit line, commonly referred to as the credit limit, offered by credit cards hit a new high of RM154.34 billion in July, according to the central bank, after rising steadily for the past 12 month.

This coincides with an increase in the number of credit cards in circulation, including supplementary cards, from 9.57 million last September to 9.92 million in July, and is approaching the 10.1 million mark reached in March. 2020.

Banks issue more credit cards as more people are employed. The unemployment rate is down – to 3.7% in July, from 3.8% in June and 3.9% in May and April.

Nevertheless, the utilization of lines of credit extended by credit cards (the ratio of outstanding balance to total line of credit extended) is not that high – it has remained below the pre-pandemic level of 24% for more two years since the appearance of Covid -19. The recent increase in credit card use during the May-July period has also not pushed up credit line use.

In addition to inflation, which drove up prices, the increase in credit card use may have been driven by improved labor market conditions, higher wages and, therefore, affordability. to credit, says Julia Goh, senior economist at UOB Global Economics and Markets Research.

“Associated to [the economy] reopening, increased mobility and release of pent-up demand [have led to an increase in] private consumption and the use of credit cards. There are also more interest-free installment plans and financing options available which have boosted demand for credit,” Goh told The Edge.

Last Friday, Malaysia’s Statistics Department said food prices pushed inflation in August to 4.7%, pushing the consumer price index (CPI) to 3.1% since the start. of the year.

In a September 23 note, RHB Research economist Chin Yee Sian said the trajectory of inflation would depend very much on the timing and extent of the adjustment in fuel and food subsidies to the future.

“Headline CPI inflation could peak in 3Q2022, with the balance of risks tilting towards lags. Sources of inflation are broadening to the services sector from food-related components.

“Demand-side pressures on core CPI inflation are likely to remain elevated in 2H2022 as we see limited downside risks to labor market conditions,” said the economist, who raised the forecast. the research house’s 2022 CPI to 3.4% from 3.2%, after it is expected to moderate to 2% next year.

Malaysia’s gross domestic product (GDP) rose 8.9% in the second quarter of this year after the economy reopened in April, and the finance ministry predicts growth could even exceed official estimates of between 5.3% and 6.3% in 2022.

However, UOB’s Goh warns that there is a risk of excessive accumulation of consumer debt, especially for those with low financial literacy or poor financial management, coupled with unstable incomes.

Citing statistics and surveys from the Credit Counseling and Debt Management Agency (AKPK), she says that this segment of cardholders is vulnerable to bankruptcy.

“Although at this point the percentage of credit card debt is low at 2.5% of total household loans,” she said, adding that the banking system’s credit card default rate is weak.

“Nevertheless, debt-led growth is seen as unsustainable over the medium term. Sustainable consumption trends must be supported by higher incomes, lower unemployment and increased productivity,” she says.

Data from Bank Negara shows that the amount past due for credit cards, with an outstanding balance of less than three months and three to six months, has seen a slight increase since April.

Overdue payments of less than three months increased to RM1.17 billion in July from RM987.88 million in April, while overdue payments of three to six months increased to 202.33 million RM against 186.34 million RM over the same period. Outstanding credit card balances older than six months have also increased since April. It should be noted that there was a sudden jump in July to RM18.04 million – the highest level since March 2014 – from RM13.1 million in June.

It would be interesting to see if credit card usage would continue to rise in the coming months as cardholders grapple with monetary normalization on the one hand and rising inflationary pressures on the other.

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