A BLANKET loan moratorium may seem an easy way out to eradicate financial woes of both households and businesses in light of the current pandemic-ravaged economic conditions.
But such is not an effective measure, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.
This is simply because a blanket loan moratorium would lead to the misallocation of resources while constraining new lending ability of banks to households and businesses given the depletion of their capital buffer.
“Re-imposing a blanket moratorium is not a sound responsible response as the current movement control order (MCO 2.0) is not too restrictive as compared to total lockdown in MCO 1.0,” he told FocusM.
“The targeted loan repayment assistance based on borrowers’ state of financial capacity to service their loan commitment is suffice to manage the loan impairment.”
Elaborating further, Lee opined that not all economic sectors are badly hit by the prolonged pandemic impact, hence a more proportionate loan repayment assistance to only those who suffer financial duress should be sufficient.
“(This would) preserve financial stability by providing capital and liquidity buffers for the banks to continue lending and support economic recovery going forward,” he pointed out.
Lee was giving his feedback to the recent revelation by Bank Negara Malaysia (BNM) that non-performing loans (NPLs) in the banking system has reached a nine-year high of RM28.7 bil as of end-2020.
This follows rising impaired loan in the final quarter of 2020 following the completion of the blanket loan moratorium on Sept 30.
The household sector aside, businesses with high impaired loans are those in the wholesale & retail trade as well as restaurants & hotels sectors.
“Banks have to actively managing their loan portfolio and asset quality through tracking closely their customers and provide the targeted loan repayment assistance to ease households and businesses’ financial duress from the MCO 2.0,” reckoned Lee.
“Banks are expected to continue front-loading provisions. They have sufficient capital buffer to absorb the transitory impact of loan default.”
For households, the rising NPLs can be attributed to loss of employment and with the borrowers – especially those in the high indebtedness category – having impaired their ability to service their loan commitment.
As for business borrowers, the loss in revenue and having to fold up their businesses would likely contribute to their loan repayment default.
Some have restructured their loan commitment, but the multiple loans commitment may compel the borrowers to re-prioritise their debt service payment. – Feb 5, 2021
