BANKS should consider extending their current six-month moratorium on loans as it would ease the pressure on Malaysian households trying to survive the impending recession, said economists.

Some experts, however, admitted this is a tough request as banks cannot afford to continue to absorb a reduced flow of loan repayments, which would inevitably impact their bottom line.  

A three-month extension to the moratorium, sought by businesses and consumers, would translate into lower annual profits for banks, they said.

However, if they grant this extension, it would be a goodwill measure for Malaysian workers facing job losses or pay cuts, they added.

At the same time, Malaysians themselves must do their part to save up the money from deferring their loan instalments so that they can stretch their budget and service the loans once the moratorium is over.

“Feedback from industry players suggest that retrenchments, salary cuts and cost-cutting measures will have a widespread impact in the coming months,” said Prof Yeah Kim Leng of Sunway University.

As the economy slowly reopens after the eight-week movement-control order (MCO), businesses are starting to evaluate the future economic impact on their balance sheets, he said.

Layoffs and pay cuts are likely to take place once businesses begin cost-cutting measures to stay afloat.  

The Malaysian Employers Federation estimates that job losses could total up to two million by year-end as a result of the pandemic.

The Small and Medium Enterprises Association said 39% of its members plan to shed workers in the coming months.

“So, a request for a three-month extension is reasonable given the severity of the economic impact due to Covid-19,” said Yeah.  

“It is something the banks should consider favourably to reduce the need for another stimulus package.”

Need to save

The moratorium was first announced by banks at the height of pandemic as a way to help businesses and households, which lost their revenue when most of the economy was shuttered during the MCO.

Currently the moratorium on all car and property loans is expected to end in September.

The Federation of Malaysian Consumers Associations (Fomca) is the latest to request that the reprieve be extended to December to help low- and middle-income households hit by job losses and pay cuts.

Fomca president Dr N. Marimuthu told The Malaysian Insight that informal sector workers and micro businesses, such as hawkers and traders, rely on a daily income and are badly affected as customers are not coming out to shop for fear of contracting Covid-19.  

Dr N. Shankaran of the Malaysian Institute of Economic Research (Mier) said while he understands Fomca’s argument, it is still a tough request to consider.

“Banks cannot afford to manage with a decreased flow of uncertain payments. They are not certain if debtors will be able to repay loans even after the six-month period,” said Shankaran, Mier’s head of research.  

“Under this set of circumstances, banks may decide not to wait an additional three months before having to face the inevitable losses. Much will depend on the assessments of banks regarding the creditworthiness of the debtors.”

Lee Heng Guie of the Malaysian-Chinese Chamber of Commerce’s socioeconomic research centre said there is no easy answer on whether an extension is feasible for banks and such a decision will likely come close to the current moratorium’s deadline.

Loan repayments are part of the banks’ income and for those six months, their revenues will be sharply affected, said Lee, the centre’s executive director.  

“But on the other hand, if the economy is not moving, and consumers don’t spend, banks will also be affected.”

There is also the risk that consumers see the moratorium and extension as a way to get extra cash to splurge.

“The logic behind the moratorium is to ease a household’s cash flow, so that they can save the money they would have otherwise used to pay loans and use it for a rainy day.

“The risk is that with an extension, people would instead spend on unnecessary things. If they lose their jobs or take a pay cut, this will hurt them when they have to start servicing the loans again.” – May 23, 2020.