BNM: Malaysian household early arrears ease to 1.71% while deeper arrears edge up

Implications

Facts

Publication: in an October 2026 BNM Insights note, Beyond Oil Prices: From Geopolitical Conflict to Financial Stability Risk, reported by Bernama on 5 October, Bank Negara Malaysia said household financial positions remain generally resilient, supported by stable labour market conditions, and that evidence of the West Asia conflict materially affecting household repayment capacity is limited.

Arrears by stage (end-June 2026, share of outstanding household loans by value): one month in arrears was 1.71% (down from 2.07% at end-March 2026). ¹ Two months in arrears was 0.71% (up from 0.65% at end-March 2026). ² Three or more months in arrears was 0.96% (up from 0.92% at end-March 2026 and 0.89% at end-June 2025). ³ The combined ratio was 3.39% (down from 3.64% at end-March 2026), ⁴ against a 2022–25 monthly average of 3.54%. ⁵ BNM said the increases in two-month and three-month-plus arrears were seen across all income groups but were more pronounced among lower-income borrowers.

Affordability and relief: the median debt service ratio of household borrowers was 32.1% (32.2% in March 2026) ⁶ and the median debt-to-income ratio 1.28 times gross income (1.29 times in March 2026). ⁷ Exposures under banks' repayment assistance and AKPK's Debt Management Programme were 1.8% of banking system and development financial institution loans (unchanged from March 2026). ⁸

Analysis

Time series: the ratio of loans three or more months in arrears stood at 0.96% at end-June 2026 (up from 0.92% at end-March 2026 and 0.89% at end-June 2025), a narrow range over five quarters (chart). The early-arrears ratio swung more: it rose through end-March before falling back to 1.71% (down from 2.07% at end-March 2026). Falling early arrears alongside rising late-stage arrears usually means fewer borrowers are newly slipping, but those who already slipped are not curing. That pattern points to a concentrated group of stressed borrowers, which matches BNM's note that the rise was sharper at lower incomes, rather than a wave of new delinquencies.

Broader context: Malaysia's banking-system gross impaired loans ratio was 1.4% in August ⁹ and household loan growth 5.2%. ¹⁰ Credit quality is therefore stable at system level, with stress visible only in the late-stage arrears buckets.

Cross-country: Philippine banks' consumer-loan NPL ratio was 5.49% in July ¹¹ and Indonesian online lenders' 90-day arrears ratio (TWP90) 4.73% in August. ¹² These measures differ in definition and coverage, so they show direction rather than comparable levels; in all three markets the late-stage indicator has risen in recent months.

Counterpoints and uncertainties

The note uses data to end-June 2026, and BNM credits government cash assistance and fuel subsidies with containing the pass-through of higher global costs; any scaling back of those measures, a sharper energy-price shock or job losses could push early arrears back up. The ratios cover banking-system household loans by value and exclude non-bank lenders and BNPL providers, where newer and lower-income borrowers are more common. BNM publishes the quarterly values in a chart and gives no breakdown by product, so the rise in late-stage arrears cannot yet be traced to specific loan types.