Kuala Lumpur, 02 March 2021
Experian Information Services (Malaysia) today released its analysis of consumer credit score trends and credit facility utilisation of Malaysians for the period 2018-2020. This study also revealed the shifts in credit worthiness of Malaysians by age groups using Experian’s i-SCORE credit risk assessment.
Experian i-SCORE is a consumer credit score in Malaysia. It is based on the statistical analysis of a consumer’s credit files to derive a numerical score ranging from 300 to 800 to represent the credit worthiness of the individual at a point in time. Unique to each individual, a higher Experian i-SCORE indicates lower credit risk to lenders. Malaysian banks frequently use the Experian i-SCORE in their retail decisioning and portfolio management.
Experian i-SCOREs are categorised into Risk Grades from 1–10. Better Risk Grades are RG 8-10, while RG 1-4 imply higher risk.
In the Experian i-SCORE Analysis, a total of 5.7 million individuals across age groups were studied, with a geographical spread of consumers across Malaysia. Credit facilities included in the study comprised credit cards, personal loans, hire purchase (e.g. vehicle loans), mortgages, overdrafts, government & education loans, plus others.
Credit scores weakened in COVID-19 impacted year particularly for 22 to 28-year-old segment
Commenting on the Experian i-SCORE analysis, Dawn Lai, Chief Executive Officer of Experian Information Services (Malaysia), said, “Comparing the credit risk grades of 2020 with 2018, we observed more improvements in the age groups of more mature Malaysians. Almost 70 per cent of individuals aged 29 - 35 either maintained or improved their risk grades over the last three years.
This similar improvement was seen across consumers in older age groups, with 87 per cent of individuals aged more than 65 years maintaining or improving on their risk grades.
Figure 1: Risk Grade Status Across Age Groups (2020 vs 2018)
“This suggests that despite COVID-19, individual debt repayment of Malaysians was broadly steady in 2020, with weakness shown more in younger consumers, aged 22-28 years. The 6-month blanket loan moratorium eased off in September 2020, with a shift towards a more targeted approach for those who need extensions or to negotiate for Rescheduling or Restructuring (R&R). We encourage Malaysians to start taking active control of their credit portfolios in 2021 as downside risks and uncertainties still remain for the economy given the profound impact of the pandemic.”
Trends in credit mix shifts in 2020 compared to 2018
Fuelled by broad digitalisation adoption by banks and consumers, there was a shift in the credit mix for Malaysians across all age segments over the last three years. Most consumers increased their use of short-term credit facilities like credit cards in 2020 in view of physical restrictions during the COVID-19 impacted year, which accelerated digital banking and transactions.
Figure 2: Credit Facility Mix by Age Groups Across 3 Years (2018-2020)
Expanding on the 22 to 28-year-old segment, Lai highlighted a concerning and emerging trend among those who are new-to-credit and credit facility management. The largest shift in the credit mix from 2018 to 2020 was seen among younger Malaysians. The most significant proportion of their credit facilities mix three years ago was in Government & Education Loans and Others (32 per cent). In 2020, this changed to Credit Cards, which almost doubled from 20 per cent to 38 per cent. Nearly 2 in 5 (39 per cent) individuals within this age group also saw their risk grades deteriorate (ref. Figure 1).
“New-to-credit consumers are particularly vulnerable as they may not have sufficient experience in credit management. Any mismanagement of credit may impact the consumer’s credit score and lead to longer-term effects on access to credit facilities. Experian’s advice to younger Malaysian consumers is to take proactive measures to improve financial literacy early. Critically, monitoring your own credit score will provide consumers with a better appreciation of credit management through life,” advised Lai.
Local financial comparison website, RinggitPlus’ recent RinggitPlus Malaysian Financial Literacy Survey 2020 also revealed that youths/millennials (below 35 years) are financially illiterate with only 29 per cent realising the importance of emergency funds since the Movement Control Order (MCO) started, with almost one in four (23 per cent) spending exactly or more than what they earn. Three in five (almost 60 per cent) in this age segment said that they were unable to sustain themselves solely on their savings beyond 3 months.
Lenders tightened new approval requirements across most portfolios in 2020
Figure 3: Credit Facility Risk Grade Approvals (Jan 2020 – Sep 2020)
Part of the study also included insights into approvals across credit facilities over the first three quarters of 2020. From June 2020 till September 2020 (ref. Figure 3), there was a noted tightening in the lending criteria amidst restricted economic activities due largely to the impact of COVID-19. Lenders approved applicants with better credit risk grades (RG 8-10) in their credit card and personal loan portfolios. A similar trend was noted in collateralised credit portfolios for mortgages and hire purchases.
This conservative trend is likely to continue given circumstances such as the ongoing economic volatility due to persistent COVID-19 cases, political uncertainties as well as Malaysia’s current state of emergency.
The insights from Experian’s analysis is reflective of data released by Malaysia’s Economic Outlook 2020/2021 Report which recorded that the bulk of household debts comprised loans for purchases of residential properties (55.9%), personal loans (14.2%), and passenger cars (12.3%). In the first seven months of 2020, loan approvals and disbursements fell by 22% and 7.3% to RM185.5 billion and RM657.1 billion respectively. Household borrowings also slowed down with loan approvals declining by 30% to RM88.9 billion.
“Despite a very challenging 2020, credit risk scores have remained broadly robust. This could be attributed to various government initiatives and stimulus measures introduced. In the long term, as these interventions ease, the real impact may surface and affect the economy and consequently, business sustainability and jobs. As individuals, credit decisions play a very critical role in our lives. With these economic uncertainties ahead of us, we urge Malaysians to remain proactive and take a more informed view in managing their credit and finances to plan for the future and our road to recovery,” concluded Lai.
