KUALA LUMPUR: The EPF's continuing practice of taking stocks as collateral will further bring down the rate of dividends because share prices are highly volatile, according to Prof Arjunan Subramaniam.
The tax consultant and adjunct professor of Universiti Utara Malaysia said that to secure the people's hard-earned savings, the fund's investment panel should only accept solid fixed assets as collateral when giving out loans.
He said it must always take a prudent and cautious approach in using the people's retirement savings.
EPF was set up to safeguard workers' savings for their retirement and not to expose their money to the highly volatile stock market. It is disturbing to note the current trend of the fund's dividend rate which has been on the decline with last year's 4.25% being the lowest, he said.
Responding to this yesterday, EPF deputy CEO (investment) Dr Roslan A. Ghaffar told The Star that last year, the fund had once again started to take shares as collateral due to the improvement in the equities market.
However, this is done through a thorough due diligence with the emphasis on the fundamental strength of each individual borrower.
Furthermore, in making sure that the risk associated is kept to a minimum level, the value of shares pledged must not be less than 1.67 times of the total loan amount.
Prior to 1997, EPF had exposure in share-collateralised loans due to the strong prevailing market sentiments during that period.
However, Dr Roslan said that since the Asian economic crisis in late 1997, the EPF had taken (from 1998 to 2001) a more prudent and conservative stance in managing its portfolio including diversifying away from share collateralised loans.
However, MTUC secretary-general G. Rajasekaran said that the EPF should stop the practice altogether now because of the prevailing market conditions.
He said that solid collateral such as fixed assets or properties and not shares, should back loans given out.
The properties should also be based on values of reliable appraisers. If its loans are given against shares, it should be given only one third of the market value of the share.
Unless this is done the dividends will continue to decline.
The EPF investment panel should learn from past mistakes and not allow the fund's money to be used to boost market or KLSE sentiment which only benefits the rich at the expense of the ordinary working people who have the bulk of their retirement savings in the funds.
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