Covid-19: Banks can take another moratorium extension but make it selective coverage, say economists

KUALA LUMPUR, July 18 — Economists have opined the Malaysian banking sector is sufficiently sturdy to withstand a plausible extension of the loans moratorium which came into effect in April to aid borrowers facing difficulties from the ongoing Covid-19 pandemic.

However, they advised that in the event of an extension, the government should allow the banks to do so selectively instead of providing blanket coverage to all borrowers, as this will benefit those who need it the most.

Universiti Tun Abdul Razak's MBA Global Islamic Finance Programme director Prof Barjoyai Bardai said it will depend on the individual bank's cash flow as to whether they are able to carry out the moratorium's extension.

“As I see it, most Malaysian banks should be strong enough to do so. In advising selective loans moratorium coverage, I am taking into account those who are able to pay back their loans compared to those who simply are unable to do so,” he told Malay Mail.

Though Barjoyai feels that banks are interested in relieving their borrowers' burdens with an extension, he said they would also be fearful of an increase in non-performing loans as a result.

“The risky aspect is that by extending the moratorium, you only postpone problems. What will happen at the end of the six-month extension?

“Will the borrowers' situation lighten or worsen? So for borrowers, an extension is a glimmer of hope since it means the banks will be unable to take action for at least another six months, but for the banks themselves it is a false hope of sorts,” he said.

Barjoyai said if certain bodies including Credit Guarantee Corporation Malaysia Berhad, which assists small and medium enterprises (SME) to obtain credit facilities from financial institutions, were able to assure banks on behalf of borrowers it might easen the situation.

“With that sort of assurance, the banks can evaluate by themselves their borrowers, to see if loans by individuals, businesses, SMEs and others, can fall under an extended moratorium,” he said.

​Asli Centre for Public Policy Studies chairman​ Tan Sri Ramon Navaratnam also holds that Malaysian banks are healthy enough to withstand an extension, and suggested individual banks review borrowers based on their capacity to repay their respective loans.

“My main concern is the SMEs, who would require some degree of government assistance. The SMEs are vital in boosting the country's economic recovery.

“In my opinion, it is better to aid SMEs than to bail out big businesses. The lesson learned from the pandemic and moratorium is for the government to build up a reserve fund to help SMEs in the future, as Covid-10 could return in spikes,” he said.

The former Transport Ministry secretary-general added that Bank Negara Malaysia (BNM) could help to oversee things to ensure no abuse of the moratorium occurs.

“The International Trade and Industry Ministry along with BNM could establish a sort of SME Rehabilitation Centre to monitor and nurture ailing SMEs.

“Saving these ailing businesses will in turn save the economy, along with the rakyat's jobs and welfare,” Ramon said.

KSI Strategic Institute economic adviser Prof Hoo Ke Ping said Malaysian banks have enough liquidity to offset any negative impact to themselves in the event of a moratorium extension.

However, he advocated for the government to adopt a hands-off approach and let the banks decide for themselves.

“It cannot be compulsory either way. A case-by-case moratorium coverage is the best idea, since different companies have different cash flows. There is no one-size-fits-all solution to this.

“By allowing the banks some flexibility in determining who qualifies for the extended loan moratorium, it will also mean individuals have a greater chance of qualifying, since the pandemic has seen a marked increase of unemployment,” Hoo said.

The veteran economist said from the banking sector's perspective, selective moratorium coverage would likely be advantageous since they wish to avoid excess foreclosures on any businesses or individuals.

“The foreclosure process is quite tedious for banks, having to go through the assets takes up months, and sometimes, years, making it a drain on the banks' resources and manpower.

“In the event selective moratorium coverage occurs, the banks can simply renegotiate the financing package with its borrowers. This will allow the loan repayment schedule to be rearranged, and the government should not be too heavy-handed but let the banks do so on their own accord,” he said.

Conversely, if no extension on the moratorium is forthcoming, Hoo predicted a spike in the number of foreclosures.

“Even before the pandemic began to hit us, there were already many weak businesses around. Without a further moratorium, this could well finish off those who survived the negative impact of Covid-19 the first time around.

“It is not a small thing to say that businesses will go down by the thousands. In some countries the bankruptcy rate resulting from Covid-19 rose to 200 to 300 per cent. So while the banks may choose to preserve themselves by not extending the moratorium, overall everyone will suffer badly as a result,” he said.

*Note: A previous edition of the story contained an error which has since been corrected.