THE end of the year will see more lay-offs and bankruptcies if banks do not extend their loan moratorium until December, said trade associations and private-sector unions.

Low- and middle-income workers, who make up more than 80% of the workforce, will experience more retrenchments, said the Malaysian Trades Union Congress (MTUC).
 
The MTUC, Malaysia’s largest private-sector union body, said this will then be followed by workers seeing their houses and cars being repossessed by banks as they cannot repay their loans.

The majority of low- and middle-income workers are now earning less than what they used to before the Covid-19 pandemic battered the world economy and forced countries, including Malaysia, into lockdowns, said MTUC president Abdul Halim Mansor.

For the majority of small- and medium-sized firms, they will have to lay off more staff to make loan repayments as they are only re-earning between 30% and 40% of their usual income, said the SME association.  

The MTUC and SME Association were commenting on Finance Minister Tengku Zafrul Abdul Aziz’s announcement in the Dewan Rakyat earlier today that the six-month loan repayment moratorium will not be extended.

The minister said borrowers should seek advice from banks on how to go about loan extensions or fee waivers.

The MTUC, however, said the knock-on effect to the economy will be less consumption, because workers won’t have enough purchasing power, which will in turn further affect the income of businesses.

Economists have warned that the economy will go into a tailspin if unemployment rises as it creates a vicious circle where consumers cannot spend, leading to weaker domestic demand.

Weaker demand will cause more companies to close and even more job losses, said the Socio-Economic Research Centre (SERC) think-tank.

The SERC had said that Malaysia’s economic recovery in 2021 is highly dependent on staunching job losses in the latter half of this year.

This was why the MTUC has persistently called for the moratorium to be extended, especially for low-income workers, as it is a necessity for the economy, said Halim.

“We are not asking that loans not be repaid; just delayed until the economy recovers next year,” Halim told The Malaysian Insight.

“Many workers endured pay cuts since they started work again in the middle of May (after the movement control order). Some are still registered as workers only to receive the RM600 subsidy given by the government.”

Under the Wage Subsidy Programme, Putrajaya pays businesses about RM600 for each worker earning below RM4,000 per month.

According to the Statistics Department, the WSP has saved about 2.7 million jobs.  

By delaying their loan repayments, banks and the government have ensured that workers can put food on the table, Halim said.

“But, if they have to start repaying loans in October when their incomes are low, they won’t be able to spend much and they could let go of their cars or houses.

“When the purchasing power of these workers drop, the economy could collapse,” said Halim.

Malaysian SME Association president Michael Kang, however, is hopeful that the ministry’s announcement today is not final, as he said he was told talks are still ongoing with banks.  

Kang echoed the MTUC’s concerns that the economy will be hit with a higher rate of unemployment if the moratorium is not extended till at least December.

When the MCO shut down most of the economy, more than two-thirds of SMEs had zero income for about 10 weeks.

“The majority of SMEs only resumed business in June and they said they are earning only 30% to 40% of their usual income. They will need till November or December to earn back 70% to 80% of their usual business.”

Their ability to retain their workers has been aided by the ability to delay loan repayments, despite earning less.

“If the moratorium ends in September, then they will have to make sacrifices, such as cutting jobs, to save the business and repay their loans,” said Kang.

Kang added banks should also look at a moratorium extension as serving their own interest.

“If businesses can’t repay their loans because they don’t make enough income, they will go bankrupt. Their workers will lose their jobs and their ability to repay their loans.

“If these loans become non-performing loans because the debtors cannot pay, then banks cannot collect their money back. So, banks also lose in the end.”

He said banks should instead consider extending the moratorium for another three months so that next year, when businesses have recovered, they are in a better position to service their loans while keeping people employed. – July 21, 2020.