by Dr. Jeyakumar Devaraj
On 27/7/2020, the Finance Minister Dato’ Sri Tengku Zafrul Abdul Aziz clarified the Government’s position on loan moratorium when queried by Lim Guan Eng during Parliamentary question time. The Finance Minister announced that banks operating in Malaysia have agreed to extend the loan moratorium for another three months (October to December 2020) for families whose working members are still unemployed. He said that the banks also agreed to consider restructuring loans for families who have suffered a drop in their income.
From the figures that Tengku Zafrul quoted in his answer, there are good reasons for this targeted approach to loan relief. First of all, the banking sector has suffered a loss of income amounting to RM1.06 billion for each month of the loan moratorium period, as they 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 RM79 billion that would have normally been paid back over the 6 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 the businesses which 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 PSM is worried 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 income has not recovered to the pre-COVID level. There will be families where only one of the two breadwinners are now back at work. There will be other families where total income is down by 30% because of the loss of overtime earnings. Will the banks be sympathetic to these families?
We need to bear in mind that many of the borrowers from the second lowest quintile of our population (21st to 40th percentile) over extended 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, for example the MayBank, the biggest lender in Malaysia, are not encouraging either. Starbiz 4/7/2020 reports MayBank as stating that “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 MCO period, PSM activists who have been going to banks together with people whose housing loans were in arrears, have noted that banks can be very 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 lawyer letters, court action and auction which all further ramp up debt as all these actions are billed to the borrower’s account. Banks are also quick to raise the interest rates on the loan the moment the family has difficulty in paying. These actions by banks push the borrower deeper into debt, and it becomes very difficult to climb out of it! The AKPK is not of much help, as they can only advise the bank. The banks often do not heed AKPK advice to restructure loans.
The PSM truly appreciates the fact that the banks agreed to the six month interest free moratorium though it meant that banks had to forgo earnings amounting to almost RM 6 billion. The moratorium certainly helped many families and businesses weather the lockdown. But banks cannot go back to “business as usual” right away as our economy is not back to normal yet. If they do so, those with the least financial reserves are going to suffer disproportionately. A large number of those in the second lowest quintile are going to default on their loan repayments and end up losing their houses.
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 check and balance procedure in place to which borrowers can appeal if their bank is being too unfriendly. Tribunals set up by Bank Negara at State level is what we urgently need at this stage. These Tribunals should be sufficiently empowered to instruct banks to not institute legal proceedings but instead offer a temporary respite to borrowers who are in financial difficulty. Those who are back at work, but have a drop in their income should have the option of referring their case to the tribunal if their bank refuses to temporarily relax the terms of their loan.
The PSM fully agrees that the liquidity of the banking system has to be maintained so that economic recovery is not retarded by the lack of credit for businesses that want to re-start operations. But 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 option of “Debt Monetization” to procure the funds to replenish liquidity should be seriously considered by the Government – it is being used in several other countries including Indonesia, Australia, New Zealand and India.
The 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 – 30/9/2020 is not too far away.
Dr. Jeyakumar Devaraj is the Chairperson of the Socialist Party of Malaysia (PSM).