By Chee Jo-Ey
BANKING institutions will be granting an automatic moratorium on all loans by individuals and SMEs for six months from April 1.
As a gesture of goodwill, Maybank, Public Bank, CIMB, RHB, AmBank and Alliance Bank had announced that they will also not compound interest on loans during the moratorium and more banks are expected to follow suit.
However, it is imperative to understand that even though the moratorium is offered to everyone, the main purpose of the move is to help those most affected to tide over a very tight situation.
The entire country has been under the Movement Control Order (MCO) since March 18 to curb the spread of Covid-19.
Many are affected, from the self-employed like e-hailing drivers who no longer can earn due to the MCO or small restaurant businesses that could no longer rake in as much.
Now that we have extra money on our hands, how should we spend it? Or should we spend it at all?
In difficult times like this with whispers of a possible recession growing more audible, it is probably wise to be strategic about the leeway given to us in loan repayments to safeguard our future.
Sunway University Business School economics professor Dr Yeah Kim Leng said: “The deferred loan repayments are likely to be used to stay afloat. For firms, these include paying wages and salaries, rental and utilities, inventories and all due payables as cash flow is disrupted by loss of business income and expected rise in receivables.
“For individuals, the money set aside for paying loans can be used to sustain daily living expenses, especially if their income source is reduced or cut off due to the MCO. Otherwise, the deferred payment can be saved for emergency use or invested to earn extra passive income.”
For those who are still able to earn consistently, the right thing to do is probably to create a cash reserve with the extra money. At the end of the day when the moratorium period ends, you’ll still need to make repayments and you want to make sure that you will not be facing challenges then.
No one can guarantee what the situation would be like after six months and how much time the economy would need to recover after the virus outbreak.
University of Malaya department of finance and banking senior lecturer Dr Eric Koh said: “I think the main thrust of the loan moratorium is to give businesses some breathing space in the light of depressed business but at the same time some committed cash outflows. But if some businesses are in a good position of having surplus cash, then they should use this surplus cash wisely and in a disciplined way.
“You must bear in mind that once the temporary moratorium period is over, you are obliged to repay your debts. So, that surplus cash can’t be used for long term or very risky or very illiquid purposes.” — March 30, 2020
