Malaysia's total household debt, as a proportion of gross domestic product (GDP), was lower at 88.4 percent in 2016 from 89.1 percent recorded in 2015, said Bank Negara.

This is because the pace of moderation in debt slowed below nominal GDP growth for the first time since 2010, potentially marking a turning point for adjustments in household leverage.

"The debt service ratios of households generally remained within prudent levels and the share of borrowings by vulnerable households reduced further in 2016," Bank Negara said in the Financial Stability and Payment Report 2016 released today.

Banks have also been gradually increasing the level of provisions and reserves for collective impairments to strengthen buffers against potential loss, said the central bank in the report.

"This comes on the back of higher impairments from household lending, albeit, from low levels," it added.

A broader deterioration in household asset quality is expected to be reasonably well-contained, owing to macroprudential measures that have been in place since 2012.

"While these measures are presently judged to be adequate, continued vigilance is required to contain risks from building up again," added the report.

- Bernama