Another loan moratorium not a good idea

Paramount Corp Jeffrey Chew

BANKS are feeling the pressure following calls by certain groups of seemingly influential politicians who are focusing on populist moves to gain the favour of the masses.

This is according to several senior bankers who are also the main decision-makers at their respective banks.

The subject at the centre of the controversy is the moratorium – a period where bank borrowers do not have to make payments on their loans – and these political parties are calling for another blanket moratorium to be introduced, less than three months after the first one officially ended.

A blanket moratorium by the government was introduced back in April until the end of September as a result of the Covid-19 pandemic, which caused many to lose their sources of income, and therefore, be unable to make good on their loan payments.

At the same time, because the moratorium was a blanket one, some whose incomes were unaffected also took up the moratorium, and there were even those who channeled the “extra” funds that they had – by not making payments on their loans – into the stock market, which was purring along nicely over the same period.

To be exact, the blanket moratorium had benefited more than 90% of total borrowers in the country, with some 7.7 million individuals and over 200,000 SMEs taking it up.

It ended at the end of September but since then, banks have come out to say they are open to discussing with those who really need extended periods of aid, particularly those from the low-income groups, as well as those from heavily affected industries such as hotels, tourism and aviation.

Amid the brouhaha, one thing is quite clear, at least from the viewpoint of lenders.

“For the banks, another blanket moratorium will certainly not be good, ” says a banker.

He says most of their recent earnings have been much lower than in the past, as provisions for doubtful debts have increased drastically.

“Allowing for another blanket moratorium will extend the pain for lenders. Banks will eventually need to put aside more provisions for these bad debts, and overall, this will disrupt the banking and possibly, the entire financial system, ” he says.

Proponents of a blanket moratorium argue that although banks’ net profits have been declining, they are still profitable and can afford to impose another blanket moratorium.

Not so, bankers say as the implications can be far and wide.

“Banks need to continue to make profits in order to maintain sufficient capital levels to, in turn, maintain a certain level of strength, more so in these pandemic times, where more allocation for capital is needed due to uncertainties.”

According to this banker, there is also the perception that banks keep the profits that they make to themselves. “This is untrue as most of the profits are divvied out to the shareholders, ” he adds.

In the most recently-concluded quarter, the two largest banks in the country, reported a decline in their net profits on a year-on-year basis.

Malayan Banking Bhd said it made a net profit of RM1.95bil for its latest quarter, compared to almost RM2bil earlier.

In the case of CIMB Group Holdings Bhd, the fall in income was much steeper, with the banking group reporting a net profit of RM194.4mil against more than RM1bil for the same period a year ago.

Bankers are adamant that they cannot afford another blanket moratorium because if they are not perceived to be strong, long-time depositors may also start taking out their funds aggresively and placing them in other avenues.

“What happens then?”

“And if borrowers do not pay us back for an extended period of time, where is the sustained cash inflow to lend to fresh borrowers going to come from? We must continue to lend to ensure that the economy continues to function. Therefore, those who can pay back should pay back and a blanket moratorium is not necessary and certainly not viable, ” another banker adds.

Property firm Paramount Corp Bhd group CEO and executive director Jeffrey Chew Sun Teong says the blanket moratorium was the major contributor for (some) workers not wanting to go to work.

“Some used the excess funds to speculate in the stock market...get them back to work and ensure that they continue working so that they can do something productive for the country, ” he tells StarBizWeek.

Still, Chew, who is ex-CEO of OCBC Bank (Malaysia) Bhd, admits that the automatic blanket moratorium done at the onset of the pandemic was generally a necessary move as “we could not anticipate the impact of the pandemic then”.

“But now, we see we have a relatively low death rate, nothing compared to the 1918 Spanish Flu, so people should get on with life and business and stop depending on moratoriums.

“Of course, some sectors that have been badly affected since March without any recovery in sight, should be given some leeway on their loans but to the rest of the Malaysians, it is time to get back to work, adopt the new norms and start paying back your loans, ” Chew adds.

“If you don’t, new projects and businesses will be deprived of fresh financing needed to create new jobs and so on.”

Chew’s as well as the sentiments of the other bankers echo what Bank Negara said last month.

Governor Datuk Nor Shamsiah Mohd Yunus was quoted as saying that “reimposing a blanket moratorium would not be a proportionate or responsible response” in this current economic condition, and that it is vital to protect and preserve the capital and liquidity buffers of lenders to ensure that the process of lending is not disrupted.

For now, it remains to be seen what will happen.

A recent investment note by AmInvestment Bank points out that at the end of September, the percentage of loans in Malaysia under the repayment assistance programmes for banks ranged between 8% and 15%, and this was much lower than what was seen in the six-month automatic blanket moratorium.

It added that for now, the industry’s total gross impaired loans and net impaired loans figures are “still stable” at 1.4% and 0.9%, respectively.

“October saw a rise in provisions by 5.5% on a month-on-month basis, and we continue to expect banks to further frontload their provisions, conservatively booking more provisions as management overlays in the remaining months of the fourth quarter of 2020.”

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