Page 268 - Special Topic Session (STS) - Volume 3

STS543 Muizz A. et al.

Effectiveness of policies in addressing household
indebtedness: Evidence from credit registry data
in Malaysia
Muizz Aziz, Siow Zhen Shing
Central Bank of Malaysia

The authors would like to thank Qaiser Iskandar Anwarudin, Cheah Su Ling, Karen Lee, Siti
Hanifah Borhan Nordin, Rafidah Mohamad Zahari and Nik Ahmad Rusydan bin Nik Hafizi for
their invaluable assistance and feedback. The authors can be contacted at muizz@bnm.gov.my
and siowzs@bnm.gov.my.

Disclaimer: This paper represents the views of the authors and may not necessarily be those of
Bank Negara Malaysia (BNM) or BNM policy. The views expressed herein should therefore be
attributed to the authors and not to BNM.

Abstract
In this study, we assess the impact of macroprudential policies on debt service
ratio (DSR) of households using borrower-level data from the credit registry.
The findings are twofold. First, policies are found to be generally effective in
improving borrowers’ DSR levels for personal financing, particularly among
low-income borrowers who are typically highly leveraged. Second, we found
that the effectiveness of the policies in improving borrowers’ DSR levels for
residential property loan may be constrained by the simultaneous increase in
house prices. These insights lend support for a more holistic approach in
addressing household indebtedness.

Keywords
Macroprudential Policy; Financial Regulation; Household Debt; Household
Debt Service Ratio

1. Introduction
In the decade since the Global Financial Crisis, the immense economic
costs arising from the vulnerabilities in the credit and housing markets have
brought macroprudential policies into sharper focus. Traditionally, the most
common tools in policymakers’ toolbox have been monetary and
microprudential policies. While monetary policy proved to be too blunt,
microprudential policy, on the other hand, tend to have limited optics on
system-wide financial vulnerabilities. In turn, a growing number of countries
have embraced macroprudential policies to fill the gap, by adopting a more
targeted and systemic approach to financial regulation and supervision.

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