ECONOMISTS have dismissed fears of an increase in youth bankruptcies once government aid packages halt next month. 

They told The Malaysian Insight that although the loan moratorium will end soon, banks will continue to provide targeted assistance to those unable to repay their debts. 

Universiti Tunku Abdul Rahman associate professor Wong Chin-Yoong said it would not be beneficial for banks to seek bankruptcy of their borrowers, adding banks would prefer to restructure loans to get back their money. 

“Banks are most afraid of a sudden increase in bad debts. But they are not afraid of restructuring your debts, extending the moratorium period or allowing instalments. 

“Generally, they are willing to coordinate with borrowers,” he said. 

Therefore, he does not believe that many will go bankrupt when government aid, including the extended moratorium on loan repayment, ends. 

“In fact, the deferment of loan repayment was no longer available for a period from October last year. 

“It was only provided to specific groups from then until June this year when the moratorium was introduced again during the total lockdown. 

“So from October last year to June this year, we didn’t see many youngsters unable to repay their loans and go bankrupt,” Wong said. 

He said that even if the economy does not return to 2019 levels, as long as businesses can run, job opportunities would be available.

With the existence of job opportunities, the affected youth can survive even without government financial assistance. 

“To put it simply, bankruptcy will happen to people, but I don’t think it will become a common phenomenon,” Wong said. 

Phillip Capital chief strategist Phua Lee Kerk agreed, but said some people may still go bankrupt. 

“Maybe they have yet to find a job, or the job they found pays less or that their businesses have failed,” Phua said. 

He said with the emergence of the Omicron Covid-19 variant, there would be more uncertainties concerning economic recovery next year. 

“Next year may also be a general election year. And if the Omicron variant has a serious impact, tightening measures abroad will also affect the export economy. 

“Under these circumstances, it will be difficult for the country’s economy to grow. 

“However, there is a high possibility that the deferred loan repayment will be extended and the probability of bankruptcy will be reduced,” he said. 

He also said that focus must be given to middle- and high-income groups facing financial hardship.

Both groups are heavily burdened, because on top of having to service their own housing loan, they have another house as investment, Phua said.

“If their income does not increase, they will face considerable challenges. So, bankruptcy is a possibility not just among the youth,” he said. 

He urged those facing debt difficulties to consult with the Credit Counselling and Debt Management Agency and negotiate with the bank. 

“When you feel things are getting difficult, you must seek assistance and try to avoid the most serious consequences.”

Bankruptcy threshold raised

Socio-Economic Research Centre Malaysia executive director Lee Heng Guie also believed the potential for bankruptcy among the youth exists. 

“Although the economy has turned for the better in the past two months, small businesses still need time to slowly recover. 

“Sales have not returned to pre-pandemic levels and therefore, there is the dilemma of poor and unsustainable cash flow,” he said. 

He added that the people will really get tested when the government aid plan ends. 

Similar to Wong, he also said that borrowers can contact their respective banks after the loan moratorium ends. 

“If you still need assistance, I believe the banks will have room for negotiation, especially for tourism, catering, and aviation industries because these sectors will take longer to recover,” Lee said. 

He also said that youth would not become bankrupt easily as the government has raised the bankruptcy threshold.

Lee said the country’s economic recovery this year was still weak, and hoped it would improve next year. 

The Malaysian Association of Borrowers and Consumers Solution (4PM) had previously voiced its worry that tens of thousands of youth aged 30 to 45 would fall into bankruptcy once the government aid programmes are over.

4PM president Rosland Mohd Arif said that he receives an average of three bankruptcy calls daily from all over the country. 

“If 30 calls per day, that’s 900 per month and 10,800 per year. That’s just me though. I haven’t included my officers yet,” he told Utusan Malaysia. 

He was concerned that many will resort to borrowing from loan sharks to survive when loans, bank moratoriums and withdrawals from Employees Provident Fund come to an end next month. – December 6, 2021.