Rising Personal Bankruptcies Signal Growing Household Strain In Malaysia

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Rising personal bankruptcies in Malaysia signal growing financial strain among households, which economists warn could, if left unchecked, undermine productivity, dampen consumer spending, and weaken investor confidence. STR/ AHMAD UKASYAHKUALA LUMPUR: Rising personal bankruptcies in Malaysia signal growing financial strain among households, which economists warn could, if left unchecked, undermine productivity, dampen consumer spending, and weaken investor confidence.
Putra Business School Professor Dr Ahmed Razman Abdul Latiff said increasing bankruptcies not only reduce household spending and workforce productivity but also elevate credit risks for financial institutions.
He noted that Malaysia is moving toward a more debtor-friendly system through mechanisms such as Debtor's Petitions and the Credit Counselling and Debt Management Agency (AKPK), in contrast to other Asean countries that remain largely creditor-focused.
Bank Negara Malaysia's revised Policy Document on Personal Financing aims to strengthen household resilience by limiting high-risk borrowing and requiring financial education for larger loans.
In the first nine months of 2025, Malaysia recorded 4,875 bankruptcy cases, a 5.7 per cent increase from the 4,611 cases registered during the same period in 2024. A total of 3,491 cases, or 71.6 per cent, involved debts between RM500,000 and RM999,999, while 1,004 cases, or 20.6 per cent, involved debts between RM100,000 and RM499,999.
Insolvency pressures are concentrated in Selangor (1,133 cases, 23.2 per cent), followed by the Federal Territories (665 cases, 13.6 per cent) and Johor (503 cases, 10.3 per cent).
The number of individuals aged 30 and below who were declared bankrupt rose sharply to 332 cases, up about 60 per cent from 208 during the same period in 2024.
Senior citizens also saw a significant increase, with 423 cases recorded, up 43 per cent from 295 a year earlier.
Personal loans remained the largest driver of bankruptcy in 2025, with 2,200 cases, constituting 45.1 per cent of all filings, followed by business loans (789 cases, or 16.2 per cent) and housing loans (428 cases, or 8.8 per cent).
From Jan 1, 2027, Bank Negara's revised policy will require borrowers seeking loans over RM100,000 to complete a financial education module.
It also caps repayment periods for unsecured personal financing at 10 years, bans the Rule of 78, and introduces tighter checks on Buy Now, Pay Later (BNPL) facilities above RM1,500, while restricting access for bankrupt individuals.
Razman suggested that instead of adding education modules or stricter affordability tests, the government should encourage alternatives to high-interest personal loans.
"There is a better alternative, such as Qard Hassan (benevolent loan), that can be explored for its potential offering, which can be coupled with the Hibah (gift) function.
"This alternative will help to improve the credit score of the individual as well as reduce the financial commitment compared to taking a personal loan with the financial institutions," he added.
Economist Doris Liew echoed the view that rising personal bankruptcies signal structural vulnerabilities, including high household debt, slow wage growth and rising living costs.
However, she believes Bank Negara's revised personal financing rules will have only a modest economic impact.
She said tighter regulations may slow personal-financing growth and temporarily soften consumption, but the long-term effects are likely positive as they help limit excessive borrowing and reduce future debt distress.
"The RM100,000 threshold also limits the impact, as most small-ticket purchases fall well below this level; lower-income households may even benefit through an implicit safeguard against excessive leverage in a context where financial literacy remains uneven.
"The policy applies only to personal, household and BNPL-type financing, and not to credit cards, mortgages, or vehicle loans, so its economic footprint remains contained while still strengthening consumer protection," Liew added.
Bank Negara told Business Times that personal financing plays a key role in helping households manage essential expenses, particularly during financial strain, but stressed the importance of informed decision-making.
The central bank noted that personal financing accounted for 49 per cent of bankruptcy cases from 2020 to 2024, with the highest uptake among individuals earning below RM5,000 per month.
Insights from its 2024 Financial Capability and Inclusion (FCI) Survey show that low or unstable income, combined with rising living costs, continues to challenge Malaysians' ability to manage finances effectively.
While financial service providers can develop their own modules, Bank Negara said it is working with AKPK to create an online module similar to its existing Rumahku course for first-time homebuyers.
The module guides consumers in estimating loan instalments, evaluating affordability, understanding repayment consequences and applying practical financial tips.
"Given that the new requirement will only take effect in January 2027, further details of AKPK's financial education module for personal financing will be shared once it has been finalised.
"This initiative complements financial services providers' suitability and affordability assessments for loans to new customers," it added. - NST

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