The six-month loan moratorium imposed due to Covid-19 should not be extended as the government has put other measures in place such as the Overnight Policy Rate (OPR) cuts and the RM260 bil Prihatin Economic Stimulus Package to ease the burden of individuals and businesses during the Covid-19 outbreak, economists told FocusM.
They also said that the banking system’s cash flow would be adversely affected if the moratorium period was extended. The banking system is the barometer of the economy and any shocks to it would translate into a weak economy.
Bank Negara Malaysia’s (BNM) decision to impose a six-month loan moratorium for SMEs and individuals from April to September has provided some breathing space for businesses and individuals in mitigating the economic impact from the Covid-19 pandemic.
The Covid-19 virus has so far infected nearly 7,000 people and claimed 114 lives in the country, apart from causing severe damage to the demand and supply dynamics of the economy.
The Department of Statistics Malaysia (DoSM) recently reported that 610,000 Malaysians had lost their jobs in March amid the pathogen outbreak. Unemployment stood at 3.9% which is an all-time high and is expected to reach 5.5% by year-end.
In light of the worsening conditions, the Federation of Malaysia Consumers Association has pleaded with the government to extend the moratorium period till December.
Bank Islam Bhd chief economist Dr Afzanizam Abdul Rashid said SMEs should take advantage of the current low-interest-rate regime to refinance their loans and inject surplus cash into their businesses.
“I don’t think extending the loan moratorium would be viable as banks’ cash flows will be affected. What is more important now is for the borrowers – households or non-households – to relook their present financial condition. At the moment, the interest rates are very low and, therefore, it makes sense for the existing borrowers to refinance their existing financing facilities in order to lower their borrowing costs,” Afzanizam told FocusM.
He also said that prevailing conditions in the market were well suited for investments in a few asset classes.
“The prevailing market condition is very conducive for investment, be it in equity, fixed income or money market. There are various platforms that one could consider. They can go for direct investment like investing in the stock market or they can invest in unit trusts that can offer various asset class exposure with varying degrees of investment risks.
“Therefore, the grand scheme of things is about financial literacy and making the right decision with respect to their finances. Savings alone is not sufficient as the money will be eroded by inflation. The inflation rate on a compound annual growth rate basis stood at 2.5% per annum. This would mean that every year, one would lose their purchasing power by 2.5%. So investment is very important in order to preserve and enhance wealth,” said Afzanizam.
Meanwhile, MIDF economist Mazlina Abdul Rahman said the loan moratorium period (April to September 2020) was sufficient given that the government has gradually lifted movement restrictions.
“Most of the businesses have resumed their operations as of May 2020. Although business conditions could be unstable for some companies despite reopening, we believe the balance four months in the moratorium offered will give them enough time to make adjustments to any changes needed in their recovery process before they start servicing their debt.
“Besides this moratorium, there are still other supportive measures in place such as OPR cuts. Year-to-date, BNM has lowered the OPR three consecutive times for a total of 100 basis points. This has lowered financing costs which can encourage borrowing and investing. In addition, it would also lower household loan commitments in which they will have more disposable income to spend. Furthermore, there are other additional funds provided under the stimulus package particularly to assist SMEs,” said Mazlina. – May 20, 2020
