‘Honeymoon’ over for borrowers

ALL eyes are on what is set to unfold after the blanket loan moratorium expires in September.

The six-month relief, which was nothing more than a “painkiller” for an economy that was slowing down, ensured that there was enough cash flow for businesses and households to sustain amid an unprecedented crisis.

According to Moody’s Investors Service, Malaysia offered the most extensive loan moratorium in South-East Asia, covering about 80% of total loans.

Come October 2020, most borrowers will have to return to the pre-Covid-19 norm as they resume repaying their monthly debt obligations – unless banks announce a moratorium extension.

While it is comforting to note that the Malaysian economy is already on the path of recovery, it is still far from the pre-pandemic levels.

Many businesses, especially the small and medium-sized enterprises, are still struggling to regain their foothold. Meanwhile, the labour market continues to be under pressure despite sprouting green shoots of recovery.

With this in mind, the most pressing question currently is whether the country will see a spike in borrowers failing to meet their debt repayments from October onwards.

The next question is whether the domestic banking system is capable enough to digest the potential impact from the higher bad loans.

After all, private non-financial sector borrowing in Malaysia is higher than the size of the economy.

Based on the data by the Bank of International Settlements, the total credit to the private non-financial sector stood at RM2.07 trillion in 2019. In comparison, the country’s nominal gross domestic product was RM1.51 trillion.

A sharp surge in bad loans or non-performing loans (NPLs) as a result of the failure to repay debt could be detrimental to the banking sector.

In particular, a rise in bad loans in certain sectors such as property development could create a cascading effect on the bigger economy.

To be sure, not everyone will be affected by the resumption of loan repayments.

Most working Malaysians remain employed, although a fair share of employees have been asked to undertake pay cuts or unpaid leave.

As of end-May, about 14.9 million individuals or 94.7% of the total labour force was employed, although the percentage has dropped slightly from 96.7% as at end-2019.

However, a recent survey by JobStreet found that about 48% of its respondents have experienced a negative impact on remuneration and salary, while 24% have been required to take leave.

Calls for the loan moratorium to be extended are getting louder, as concerns rise on the ability of certain borrowers to repay.

A veteran financial consultant tells StarBizWeek that banks should worry less about their bottomline, and instead, extend the moratorium to a more targeted group of borrowers.

“Rather than the blanket moratorium that we have currently, banks should only provide relief to borrowers who are retrenched, experiencing pay cuts or those businesses that have witnessed a sharp drop in sales.

“Generally, an economic crisis happens only once in every 10 years. Since the banks have enjoyed good profitability over the past years, it is not unreasonable to expect them to take a slight hit on the bottomline for the sake of borrowers, ” he said.

To be fair, banks in Malaysia have urged financially-troubled borrowers to approach them for assistance. Businesses and individuals who find it hard to repay their loans can request for their borrowings to be restructured or rescheduled (R&R).

This basically means that the loan tenure could be extended, offering the opportunity for borrowers to pay a lower amount of installments every month.

In fact, banks have been actively engaging with their borrowers in making sure they require specific assistance.

It is worth noting that AmBank, for instance, has said it is mulling a targeted loan moratorium.

Alliance Bank, in reply to StarBizWeek’s queries, also says that it is ready to “extend payment relief assistance post-moratorium”.

“These relief packages are tailored to each client’s situation.

“Our goal is to extend repayment assistance to all our customers. We have made available various forms of payment relief assistance to help them weather this crisis, ” it says.

As for individual borrowers with multiple loans from different banks, the Credit Counselling and Debt Management Agency (AKPK) says it is ready to assist.

“We will help to talk to the banks to consolidate, restructure or reschedule the loans, ” says AKPK general manager for the operations division Nor Fazleen Zakaria.

She points out that the credit profile of borrowers under the Central Credit Reference Information System (CCRIS) will remain intact, even after they partake in banks’ R&R process.

Hence, borrowers should not hesitate to approach the banks for revised terms on their loans.

“As for those who go through AKPK’s debt-management programme (DMP), there will be a tagging of AKPK in the CCRIS. However, customers have options available to them during the counselling session prior to being registered under the DMP programme.

“The tagging will be removed once borrowers have fully repaid their debts under the DMP.”

Nor Fazleen says that only one third of those who visit AKPK for consultation enter the DMP.

Over the next few months, AKPK expects more people to visit the agency, higher than the pre-Covid-19 levels. Before the outbreak, AKPK said it used to see counselling numbers of about 13,000 to 14,000 monthly.

Nor Fazleen reminds the public that the agency does not appoint third-party agents, and hence advises Malaysians not to fall prey to unscrupulous individuals who demand money for AKPK services.

She also says that borrowers who are financially affected should start approaching the banks, instead of waiting till the moratorium ends in September 2020.

“As for those who are not affected, they are advised to revisit their budget given that they have been enjoying a six-month loan moratorium and may have used the extra cash for other discretionary spending, ” says Nor Fazleen.

Re-activating Danaharta

Moving forward, the attention will not only be on banks’ assistance to borrowers, but also on banks’ preparedness to disburse more loans.

A corporate adviser says that there must be changes in how banks assess businesses that have applied for new loans.

“There must be a shift from an over-emphasis on the audited accounts to other aspects related to the businesses. For example, the entrepreneurship value of a business or how experienced the entrepreneur-owner is should be included in the criteria.

“If a business that is affected by the current crisis is run by a good entrepreneur, chances are very high for it to regain its foothold and repay its loans as it recovers, ” he says.

The corporate adviser believes that the government has a major role to play in encouraging banks to lend.

One way, according to him, is for the government to shoulder the responsibility by taking over a portion of the debt, particularly the bad loans, from the banking sector.

This can help the banks accelerate lending activities again.

“We can follow the old rule book by reactivating Pengurusan Danaharta Nasional Bhd. We have done it successfully before, and we can definitely do it again, ” he says, although the decision should be made after evaluating the banking system’s conditions in the next few months.

“Danaharta has not been abolished yet. It is now under Prokhas Sdn Bhd, which is a private limited company wholly owned by the Minister of Finance, Inc.

“I believe this is not the time for the government to worry too much about its debt levels, ” he adds.

Post-Asian Financial Crisis some 20 years ago, the-then Tun Dr Mahathir Mohamad-led government established Danaharta to restructure the banking sector, which was achieved at a low cost of less than 5% of GDP.

For perspective, Danaharta bought NPLs of banks and worked towards maximum recovery of their value.

The government is cognizant of the fact that Malaysian businesses are in need for financing as they try to sustain and recover from the Covid-19-induced crisis.

As part of its RM250bil Prihatin stimulus package, the government has introduced a RM50bil guarantee scheme or the Danajamin Prihatin Guarantee Scheme (DPGS) for large businesses to raise working capital.

The minimum financing facility amount is set at RM20mil per transaction. On the other hand, the maximum guarantee coverage amount is RM400mil or 80% of the financing facility, which will also be applied to a group of companies.

In an email reply to StarBizweek, Danajamin says there has been growing interest in the DPGS from businesses in a variety of sectors.

“So far, we have received preliminary applications from the approving banks amounting to approximately RM400mil. This is just the start, as we understand that the banks are working on more transactions as the process requires them to approve the financing first before applying to us.

“Once the banks have submitted their DPGS proposals to us, the applications will be subject to further credit evaluation by Danajamin in order to ensure the government’s risk appetite is also taken into consideration before any approval is given on the guarantee coverage, ” it says.

Danajamin was also asked whether it foresees potential corporate defaults on the loans it has already guaranteed.

“We adopt a rigorous holistic approach in our credit assessment of potential clients, which we then follow up with constant monitoring of our client’s financial profile throughout the guarantee period.

“This ongoing monitoring and engagement approach allows us to identify potential problems early enough for appropriate remedial management in order to manage the quality of our portfolio. Thus, we are well prepared in managing our portfolio under any economic environment, ” it says.

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Borrowers , debt moratorium , loan , AKPK , Nor Fazleen


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