Consumer Credit in Malaysia

2020 IMPACT

Consumers’ financial insecurity as a result of the pandemic results in deferred payment programmes by banks, driving up outstanding balance in 2020

The emergence of COVID-19 in Malaysia and the subsequent lockdown measures (or the Movement Control Order - MCO) resulted in unemployment for many consumers involved in the tourism or hospitality sectors due to the closure of borders and home confinement measures, while others saw their disposable incomes decrease, resulting in their inability to make repayments on loans which they had taken out prior to the pandemic. This scenario led to huge declines in gross lending for auto, card and durables lending and a notable rise in outstanding balance across consumer lending as Malays increasingly found it increasingly difficult to make their monthly payments.

Banks look to extend offers of assistance to customers likely to struggle beyond 2020

Banks have continued to look at ways to support customers who are unlikely to quickly recover in terms of employment status or return to financial stability, with a number of institutions extending favourable terms for repayments; Public Bank has since issued its intention to support customers further, including those who are employed but still in financial difficulties, to reschedule their repayment terms with lower monthly instalments up until January 2022; therefore, customers affected by a 50% or more reduction in cash flow were permitted to pay 25% of their existing monthly repayment figure between October 2020 and March 2021, to be followed by 50% of their existing monthly repayment plan between April 2021 and December 2021 before fully resuming all existing repayment terms from January 2022 onwards.

Government launches fourth financial stimulus package in June and tax relief on cars in an effort to support auto lending

The government also addressed concerns over financial instability following the emergence of the pandemic, and the need to not only support struggling consumers but also the economy with its fourth financial stimulus package called Penjana, a short-term economic recovery plan which it announced on 5 June 2020 worth MYR35 billion.

RECOVERY AND OPPORTUNITIES

Significant uptick in growth by gross lending in 2021 but overall value unlikely to reach pre-pandemic levels until 2024

Consumer credit outstanding balance set to continue growing over the forecast period; although not as significant as the rate witnessed in 2020 due to a freeze on repayments, the rate of growth will be remain fairly stable going into the forecast period, with 2021 and 2022 outperforming the forecast period average at constant prices, as consumers continue to rely on personal loans to get them through an unstable period. In addition, the higher growth for 2021/2022 will be linked by targeted assistance programmes by banks, which help customers who are likely to continue to struggle to repay their loans going into the forecast period through reduced monthly instalments.

Strong performance predicted for other personal lending as consumers rely on personal loans due to decreased incomes while consolidating card debt

After auto lending, other personal lending is predicted to see the strongest value growth performance in terms of gross lending over the forecast period, due to active marketing by various banks, while card lending is set to see positive yet less dynamic growth in comparison, and is unlikely to reach its pre-pandemic levels by the end of the forecast period, as an increasing number of consumers convert credit card loans to pay off old debts at more favourable terms. Towards the end of the review period, card lending was being supported by an increasing preference for e-commerce, one which was being driven by young adults aged 18-29 years, who were making lifestyle purchases on products which they considered to be affordable and pleasurable.

Stronger performance for education lending as deferred payment plan set to end

Education lending was one of the few areas of consumer credit to experience positive growth in terms of gross lending in 2020, despite the introduction of lockdown measures (under the MCO) resulting in the closure of schools. Smaller families tend to have greater leeway in terms of discretionary spending, which often translates into spending on a better education for their children.