Unrestricted thoughts


  • Economy
  • Thursday, 26 Mar 2020

What this action does is free up cash that will otherwise enter the banking system as loan repayments, to remain in the account of borrowers. Cash is a precious commodity now with economic activity grinding to a halt. People will need money to pay for necessities to get through these times and finding out that there isn’t enough left over is not what any household will want to deal with at this time.

THE government announced a six-month moratorium yesterday on repaying loans taken by individuals and SMEs. For corporate customers, banks will be encouraged to grant a request for a moratorium on repaying loans.

The rationale given in a letter to CEOs of banks was simple: It will enable corporations to preserve jobs and swiftly resume operations when conditions improve.

The loan moratorium measure is estimated at RM100bil to the economy. It is not that banks will be shouldering that loss as interest or profit rates on those loans will be accrued, and the principal sum, for collection later when conditions improve.

The six-month time-frame is long but underscores the severity we are under. With Malaysian Institute of Economic Research projecting a recession for this year and a huge job loss never seen in such a short period of time, the size of the action was appropriate.

What this action does is free up cash that will otherwise enter the banking system as loan repayments, to remain in the account of borrowers.

Cash is a precious commodity now with economic activity grinding to a halt. People will need money to pay for necessities to get through these times and finding out that there isn’t enough left over is not what any household will want to deal with at this time.

Having a decent balance remaining will also mean that households may be willing to accept a temporary pay cut from their employers to tie things through. We have seen the extent of that in the hospitality industry, which was the first to feel the pain from the economic disruptions of Covid-19.

Expecting a waiver from paying interest may be too much to ask. Banks are still paying depositors interest on their money and cancelling interest payments on deposits may prompt a run on banks which no one wants. Asking banks to shoulder the interest loss is also unfair.

The health of the financial industry is paramount in any crisis but doing what it can for people to have cash is equally, and maybe, more important for any government.

That’s why many of the stimulus packages worldwide are designed to do both. Keeping people employed means that the economy can resume to full speed faster than if there were wide-scale layoffs.

The stimulus package will be announced tomorrow and many are expecting another slew of measures to be announced. There are already hints there will be measures for households but what is also important is a helping hand for SMEs. The loan moratorium will help but there should be a greater cash injection to SMEs that need support before things improve. But cash or aid must also get to the people that need it the most, the B40.

What we will see is possibly the largest ever stimulus package announced by the government. It is not the time for bean counting as to whether we can afford it. The objective is to save jobs and the economy.

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money , cash , individuals , banks , accounts , stimulus , package , save , jobs , economy ,

   

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