Abstract
The high debts among Malaysia’s households and the dual banking system in Malaysia motivates this study to investigate the characteristics of the household loan in the conventional and Islamic banking institutions. The loan characteristics are vital as it serves as ‘red flags’ of loan default in the banking institutions. As conventional banks and Islamic banks are under different banking concepts and principles; normally accompanied by different loan policy and strategies, this study provides insights on the loan characteristics of the banking institutions. Using the estimated logit model, the results give information on the exposure to risk of default of the banking institutions. The results may be useful in the formulation of the lending policies of the banking institutions
Highlights
High debts among Malaysia’s households is not a new issue
The Edge (2010) reports that the ratio of household debts to disposable income is 140.4 percent; indicating that on average, the loan taken by each household in Malaysia is 1.4 times more than their incomes; the ratio is above Singapore, USA, Korea, Thailand and Indonesia
89 percent of the respondents are Malay, which normally associated with Islam as their religion, most of them prefer to have loan with conventional banks than the Islamic banks
Summary
High debts among Malaysia’s households is not a new issue. It has long been debated among economists, researchers and the policy makers and several suggestions have been highlighted to curb the issue. Malaysia's household debts to gross domestic products (GDP) has been above 60% since early 2000s, and has been on the uptrend since . In 2013, the Malaysia's household debts to GDP is 86.8%, which is one of the highest in the Asia Pacific Region (Alias, Huat & Mohamad, 2014). As of 2015, the household debt to GDP is 89.1%, which is the highest as compared to Indonesia (16.8%), Philippines (35%), Thailand (84%), Hong Kong (67.1%), Singapore (72%), South Korea (88.4%) and China (39.5%) (MIDF, 2016). The ratio has made Malaysia’s household debt among the highest in the world
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