Surely there are other ways of replenishing the liquidity of the banking system apart from squeezing families struggling to keep afloat, Jeyakumar Devaraj writes.
On 27 July, Finance Minister Tengku Zafrul Aziz clarified the government’s position on the loan moratorium when queried by Lim Guan Eng during parliamentary question time.
The finance minister announced that banks operating in Malaysia had agreed to extend the loan moratorium for another three months (October to December 2020) for families whose working members are still unemployed.
He said the banks also agreed to consider restructuring loans for families who have suffered a drop in their income.
From the figures that Zafrul quoted in his answer, there are good reasons for this targeted approach to loan relief.
First, the banking sector has suffered a loss of income amounting to RM1.1bn for each month of the loan moratorium period, as the banks have agreed to forgo the interest that they would have collected otherwise. We need to appreciate that 7.7 million or 93% of all individual borrowers and 245,000 or 95% of business borrowers opted for the loan moratorium offered in April 2020.
Second, the loan moratorium has meant that RM79bn that would have normally been paid back over the six months from April to September was not paid. This has reduced the availability of funds (liquidity) in banks and might lead to difficulty in giving out new loans to businesses that are restarting operations. (This liquidity issue will become more pronounced if the general loan moratorium is extended.)
Third, the economy is restarting and 83% of workers are back at work. So the number who still need the moratorium is much less than in April.
However, the Socialist Party of Malaysia (PSM) worries that leaving it entirely to the discretion of banks to extend the moratorium or reduce the repayment amounts is not in the interest of the many families whose incomes have not recovered to pre-Covid-19 levels.
There will be families where only one of the two breadwinners is now back at work. There will be other families where total income is down by 30% because of loss of overtime earnings. Will the banks be sympathetic to these families?
We need to remember many of the borrowers from the second-lowest quintile of our population (21st-40th percentile) overextended themselves financially when committing to buy a house. This is because wages in Malaysia are low and house prices, far too high.
So even in normal times, these poorer families were struggling to keep up with their loan repayments. Even a 10% drop in their household income can tip them into a situation where they cannot make ends meet, and they will fall behind on their bank payments.
The statements emanating from certain banks – eg MayBank, the biggest lender in Malaysia – are not encouraging either. Starbiz (4 July 2020) reports MayBank as stating “it will not consider an extension of the moratorium, as it believes that a six month period is good enough for consumers to come up with a plan how to finance their respective loans”.
A significant lack of empathy here! In times of recession, it can be quite difficult to find a job that pays as well as the job you just lost.
Even before the movement control order period, PSM activists who have been going to banks together with people whose housing loans were in arrears, have noted that banks can be unsympathetic and inflexible in dealing with these cases. The frontline officers are usually polite, but their hands are tied by bank policy.
Generally, banks adopt a take-it-or-leave-it approach and resort fairly readily to the option of sending out lawyers’ letters, court action and auction – which all further ramp up debt as all these actions are billed to borrowers’ accounts. Banks are also quick to raise the interest rates on loans the moment families have difficulty in paying.
These actions by banks push borrowers deeper into debt, and it becomes difficult to climb out of it! The Credit Counselling and Debt Management Agency (AKPK) is not of much help, as they can only advise the banks. And the banks often do not heed AKPK advice to restructure loans.
PSM appreciates the fact that the banks agreed to the six-month interest-free moratorium, even though it meant that they had to forgo earnings amounting to almost RM6bn. The moratorium helped many families and businesses weather the lockdown.
But banks cannot go back to business as usual right away as our economy is not yet back to normal. If they do, those with the least financial reserves will suffer disproportionately. Many of those in the second-lowest quintile will default on their loan repayments and end up losing their homes.
These people need more protection from the predatory instincts of banks functioning in their business-as-usual modality! There needs to be a third party procedure in place for checks and balances to which borrowers can appeal if their banks are being too unfriendly.
Tribunals set up by Bank Negara at state level are what we urgently need at this stage. These tribunals should be sufficiently empowered to instruct banks not to institute legal proceedings but instead offer a temporary respite to borrowers in financial difficulty. Those who are back at work but have suffered a drop in their incomes should have the option of referring their cases to these tribunals if their banks refuse to relax the terms of their loans temporarily.
PSM fully agrees that the liquidity of the banking system has to be maintained so that economic recovery is not retarded by a lack of credit for businesses that want to restart operations. Surely there are other ways of replenishing that liquidity apart from squeezing families struggling to keep afloat!
Government loans to banks on generous credit terms is what the PSM would recommend if the liquidity of the banking system needs to be replenished. The government should seriously consider “debt monetisation” to procure funds to replenish liquidity. This is being used in several other countries including Indonesia, Australia, New Zealand and India.
PSM hopes that the government will take these concerns and suggestions seriously and set up a mechanism to monitor and manage unsympathetic banks. This needs to be done fast – 30 September 2020 is not too far away.