19th November 2020 - 6 min read
The topic of introducing another automatic blanket moratorium in Malaysia has been highly debated of late. With the battle against Covid-19 far from over on Malaysian shores, the country is still facing restricted movement orders and other regulations that are impacting workers, businesses, and sectors of the economy in a negative way.
However, is another automatic and blanket moratorium for all Malaysians – whether they are still impacted by the Covid-19 economy or not – the right way forward?
Following the end of the first automatic blanket loan moratorium, both the government and Bank Negara Malaysia (BNM) have expressed confidence in the benefits of shifting away from the blanket method towards a more targeted approach. This can be seen by the timeline below.
The current targeted repayment assistance programme is still ongoing, whereas the enhanced assistance was announced by the Finance Minister during the tabling of Budget 2021. However, since then, there have been calls requesting for the government to revert to declaring a blanket moratorium implemented automatically for all Malaysians until June 2021.
Another blanket moratorium of loans would certainly offer the benefit of additional cashflow for all Malaysians. However, there are several reasons why another blanket loan moratorium would not be advantageous in comparison to a targeted approach.
A blanket moratorium would be a proportionate response if the majority or even all Malaysians are struggling financially due to Covid-19. This was the case during the first movement control order earlier in the year – which was why the decision was made to introduce it then. However, once the moratorium ended in September, BNM data states that an overwhelming amount of borrowers (85%) resumed repayments as usual.
This statistic signals that most Malaysians are in a good enough financial position to continue paying off their obligations instead of requiring additional assistance. Therefore, it may be a strategically better option to target assistance to these 15% of struggling borrowers. Implementing another automatic and blanket loan moratorium at this point could be likened to prescribing medication to those who are healthy and recovered as well as the sick.
The main thing to note is that moratoriums come at a cost. While you may not have to make repayments during the duration of the moratorium, interest will still accrue during the moratorium period, which means that you end up paying more because of it. We have previously done a breakdown showing an example of how much more in interest you could be paying on your home loan if you take up a moratorium on repayments.
Of course, you do have the option of opting out, but introducing an automatic moratorium means the onus is on you to contact your bank to do so – instead of those in need being the ones to make applications in a targeted scheme.
Comments have also been circulating – both among the public and politicians alike – that banks make billions in profit each year and thus are well-positioned to take on the debt of the public in need. Some have even opined that banks have a “social obligation” to the people and should make sacrifices. However, there are several reasons why this can be harmful both to banks and the rakyat alike.
Firstly, it is important to note the impact of another blanket loan moratorium to the liquidity of the banking system. Earlier this year, BNM has already loosened the statutory reserve requirement (SRR) to 2% which injected about RM30 billion of liquidity to the banking system. Given the cost of the April-September loan moratorium (which was valued at RM97.26 billion as of 25 September 2020), another blanket moratorium of loans will further reduce the liquidity of the banking system, and directly affect the capability of banks to give out new loans to households and businesses who need them.
Furthermore, as a commercial entity, banks are responsible for providing returns to their investors – which include Malaysians who hold shares of banks via various funds too. Remember, most Malaysians are indirect shareholders of these banks via funds like Amanah Saham Bumiputera (ASB), the Employees Provident Fund (EPF), Tabung Haji, as well as pensions in KWAP. These funds usually have considerable minority shareholdings on Malaysian banks. Thus, the profitability of banks directly affect the performance of these funds, which then directly affects the dividend payouts to the rakyat.
So, a blanket moratorium can help Malaysians directly in the short-term, but it also has wider effects that could negatively impact their earnings in both the medium- and long-term that cannot be overlooked.
The good news is that if you are truly in need of financial assistance, the banks and the government have repeatedly signaled that help is at the ready. Banks have assured from the start that they are ready to assist and with minimal requirements. In fact, the approval rate for post-moratorium repayment assistance stood as high at 98% in October 2020. The banks themselves have gone above and beyond to reach out to affected borrowers, through engagement sessions, campaigns, extended branch operating hours, and even directly contacting over 2 million borrowers to offer the targeted repayment assistance.
Moreover, the targeted repayment assistance is available for application all the way into 30 June 2021. On top of that, B40 recipients and micro-SMEs with total approved financing of up to RM150,000 have been given the additional repayment assistance options announced in Budget 2021, slated to begin in December 2020. Meanwhile, the application process for M40 borrowers will be streamlined further to only requiring self-declaration of a reduction in income.
While it is good to talk about this issue, calls on social media to cancel debt and eradicate bank profits do little to add to the discussion – and in fact highlight a glaring oversight of the ramifications the rakyat will face. In short, if you are unable to meet your monthly repayments, you don’t need to sit around and hope for an automatic blanket moratorium to be announced. Get in touch with your bank to see which one of the many options above will be best suited to your situation.
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