The Malaysia household debt will likely grow by five percent this year, compared with 12 percent registered in 2010, due to measures introduced by the government to factor in the increase.

Deputy Finance Minister Donald Lim Siang Chai said the household debt stood at RM486 billion last year or 55 per cent of the lending extended by banks.

Among the measures introduced by the government to limit housing debt were tightening credit card applications and mortgage rules for third and subsequent housing loans.

"The balance of the 45 per cent loans were given out to businesses. There are concerns small-and-medium scale businesses were unable to get sufficient loans.

"The government expects banks to help in funding projects involving investments of about RM1.4 trillion under the Economic Transformation Programme over a 10-year period in order to achieve Vision 2020," he said at the launch of BankTech Asia 2011 Conference and Exhibition.

Lim said banks would benefit as expanded domestic economic activity would create potential financing opportunities of RM1.2 trillion.

"With over 90 per cent of financing expected to come from the private sector, there is no doubt banks will be among the beneficiaries of the nation's economic advancement," he said, adding that banks would also find opportunities from the enlarged scope of 10 Entry Point Projects for the financial services.

With high expectations placed on the financial services sector, Lim said it was incumbent on financial institutions to lead the way and help facilitate the next phase of Malaysia's development.

"However, the sector faces critical challenges, including lack of scale,  liquidity and diversity in the capital markets, low levels of financial literacy and competition from regional financial centres such as Singapore, Hong Kong and increasingly Indonesia.

- Bernama