Banks should consider targeted loan moratorium

SIXTEEN out of 18 economists expected the overnight policy rate (OPR) to be maintained at 2.75%, but Bank Negara Malaysia unexpectedly raised it to 3%.

The reasons given, among others, were that the economy was resilient and persistent inflation needed to be managed.

The economy bounced strongly, hitting a 22-year high of 8.7% in 2022. But slowing global demand clouded the exports outlook, and GDP grew only 5.6% in the first quarter of 2023 compared to 7.1% in the previous quarter.

The strong performance in 2022 was due in part to withdrawals from the Employees Provident Fund (EPF), increase in minimum wage and the various cash assistance programmes related to Covid-19.

Inflation for food and non-alcoholic beverages and transport has remained high, taking up two-fifths of the income of those in the B40 group. Prices of some food items have gone up by 20%.

The 2021 Bank Negara report pointed out that when price pressures are driven by food items, cost of living pressures are disproportionately experienced by lower-income households.

According to the Statistics Department’s Household Income and Basic Amenities Survey Report 2020, a fifth of households from the M40 group have fallen into the B40 group.

Besides the increase in money supply, the exchange rate is a critical element in inflation. The resurgent US dollar, averaging between RM4.40 and RM4.744, has raised the cost of imports.

Hence, Bank Negara must be careful as the move to raise the OPR may prove to be counterproductive, and also be mindful of the lagging effects of monetary policies.

For the banks, I hope they are not bereft of all empathy. They were able to maintain their pre-tax profit levels during the pandemic, with three actually increasing their profits in 2020 and 2021 despite the six-month moratorium.

The funding and liquidity profiles of banks are expected to stay sound and supportive of new lending. Given these facts, banks should consider targeted moratorium for some of its borrowers.

As for the government, it is important to re-evaluate its degree of interference in the freedom of the domestic banking sector.

SALEH MOHAMMED

Kuala Lumpur