Borrowing appetite cools among Malaysian households, business loans hold up

KUALA LUMPUR: Malaysian households appear to be taking a more cautious approach to new borrowing, with loan applications and approvals falling sharply in August.

However, economists said the trend does not point to broad-based financial stress.

Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak told Business Times that the moderation in household loan growth was relatively small.

However, the sharper drop in applications pointed to softer demand for new financing.

Hong Leong Investment Bank Bhd (HLIB) said household loan growth eased marginally to 5.0 per cent year-on-year (YoY) in August from 5.1 per cent in July.

Household loan applications contracted 5.1 per cent, reversing a 1.7 per cent increase previously, while approvals fell 10.4 per cent, compared with a 2.4 per cent decline in July.

The decline in applications was broad-based across passenger cars, residential property, personal use and credit card usage, HLIB said.

"Households may be taking more time to assess affordability and monthly commitments before making new purchases, particularly when essential expenses remain a priority.

"This is not necessarily negative, as more disciplined borrowing can strengthen household financial resilience," he said.

Idham said the key concern would arise if weaker loan demand reflected households postponing necessary purchases because their disposable income was under excessive pressure.

Wealth Growth Also Slows

The cautious borrowing trend comes as Malaysian household financial asset growth also moderated.

Data from Allianz Research's Global Wealth Report 2026 showed household financial assets grew 6.2 per cent in 2025, down from 8.7 per cent a year earlier.

This was below the 9.8 per cent average for surveyed Asian countries excluding Japan and China, as well as the global average of 8.6 per cent.

Gross financial assets reached €769 billion (RM3.56 trillion), with insurance and pensions recording the strongest growth at 11.1 per cent.

Securities grew 2.8 per cent, while deposits rose 2.3 per cent.

Despite the stronger growth in insurance and pensions, Malaysian household wealth remained heavily concentrated in deposits and retirement savings.

Allianz Research said deposits and savings held in the Employees Provident Fund accounted for 68 per cent of total financial assets.

After adjusting for inflation, Malaysian financial assets grew 4.7 per cent in real terms in 2025, down from 6.7 per cent in 2024.

Since 2019, they have increased 21.9 per cent in real terms, below the regional average of 39.6 per cent and the global average of 22.9 per cent.

Household liabilities, meanwhile, rose 5.6 per cent to €360 billion (RM1.67 trillion), although this remained below the growth in financial assets.

HLIB said household deposit growth also remained subdued in August, easing to 0.8 per cent YoY from 1.3 per cent previously.

Household deposits fell 0.4 per cent month-on-month for the second consecutive month.

Business Borrowing Holds Up

The softer household credit trend contrasted with stronger business lending.

Total loan growth edged up to 5.7 per cent YoY in August from 5.6 per cent in July, while business lending accelerated to 8.0 per cent from 7.6 per cent.

The increase was led by lending to the information and communication; electricity, gas, steam and air-conditioning supply; and real estate activities sectors.

Idham said the divergence suggested the softer household credit trend was not necessarily indicative of a broad-based weakening in credit conditions.

For the 2027 Budget, he said the focus should be on strengthening household disposable income and financial resilience rather than encouraging more borrowing.

"This could include targeted assistance for vulnerable households, measures to improve access to quality employment and higher wages, as well as initiatives that reduce essential living costs such as childcare, transport and healthcare," he said.

He also suggested financial education and incentives for emergency savings to help households build stronger financial buffers.

"The broader objective should be to improve households' ability to manage their existing commitments and build savings, rather than stimulate consumption through additional debt or create permanent fiscal commitments," he said.

HLIB expects the 2027 Budget to prioritise measures to ease household burdens, including continued subsidies and higher social assistance.

The investment bank maintained its 2026 gross domestic product growth forecast at 5.3 per cent, implying growth would moderate to 4.8 per cent in the second half from 5.7 per cent in the first half.