Sin Chew Daily

The government's agreement with the banks to offer debt moratorium to borrowers since April has produced some positive effects in lessening the financial burden of the people while momentarily relieving the cash flow crunch experienced by many local businesses.

According to Bank Negara, some 93% of individual borrowers have benefited from this policy, along with 94% of SMEs.

Many local businesses began to resume their operations since May, with the country's economy slowly showing signs of recovery. However, overall speaking, the level of economic vibrancy still lags behind pre-MCO levels. Once the moratorium ends, many businesses may have to face the dilemma of repaying their loans, and this may spark a new wave of closedowns. As such, many have urged the government to extend the loan moratorium.

Nevertheless, because of the moratorium, banks have suffered reduced revenues and profits and they generally object to any extension to the moratorium.

Finance minister Tengku Zafrul Tengku Abdul Aziz has pointed out that banks in the country have suffered RM6.4 billion in financial losses as a result of the six-month moratorium.

As a matter of fact, the health of Malaysia's banks today is far better than 30 years ago. For instance, the banking sector posted a total of RM32 billion in after-tax profits in 2019, and this should be sufficient to cushion the banks against any risks and bear the cost to continue discharging their corporate social responsibilities.

Bank Negara is still inclined to provide targeted assistance to more vulnerable borrowers instead of further extending loan moratorium across the board in a bid to mitigate banks' losses as a consequence of moratorium extension.

Statistics from banks shows that some 90% of households and SMEs opted for debt deferment when the loan moratorium went into effect in April. However, with income sources gradually restored after the MCO rules were relaxed, the acceptance rate fell to approximately 85%, showing that the ratio of borrowers able to weather the unfavorable effects of the coronavirus pandemic has increased even in the absence of any financial assistance, which is a really encouraging development.

In view of this, prime minister Tan Sri Muhyiddin Yassin announced yesterday to extend the moratorium by another three months and provide assistance to targeted groups, in particular those who have lost their jobs this year or are still unemployed now.

This shows that the government has listened to the voices of people from different walks of life and come up with the most optimal decisions to help those who are really in need.

Moratorium extension offered to all borrowers irrespective of their risk tolerance or how bad they have been affected by the lockdown, will invariably put additional pressure on market economics while promoting heavier reliance on government assistance.

The advantage of targeted assistance is that only individuals or companies that are really in need will get to talk to the banks to enjoy the moratorium facility when they face financial difficulty. This will create a win-win situation for both the banks and their clients and promote a healthy and positive development for the country's economy.

Meanwhile, those still unable to service their loan installments must be adequately prepared to resume their loan settlement after September because the deferment should be seen only as an expedient measure and any unnecessary loan deferment or extension will never constitute good financial planning.