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The BANKS are feeling the pressure from calls from certain seemingly influential groups of politicians who are targeting populist movements to win the favor of the masses.
This is according to several senior bankers who are also the main decision makers at their respective banks.
The issue at the center of the controversy is the moratorium, a period in which bank borrowers do not have to make payments on their loans, and these political parties are calling for another general moratorium to be introduced, less than three months after the first. officially. finished.
The government introduced a blanket moratorium 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 unable to meet their loan payments.
At the same time, because the moratorium was general, some whose income was not affected also assumed 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 purred pleasantly during the same period.
To be exact, the general moratorium had benefited more than 90% of all borrowers in the country, with some 7.7 million people and more than 200,000 SMEs hosting it.
It ended in late September, but banks have since come out to say that they are open to discussing with those who really need extended periods of help, particularly those in low-income groups, as well as those in hard-hit industries such as hotels, tourism and aviation.
Amid the uproar, one thing is pretty clear, at least from the lenders’ point of view.
“For banks, another blanket moratorium will certainly not be good,” says one banker.
He says most of his recent earnings have been much lower than in the past, as provisions for bad debt have increased dramatically.
Allowing another blanket moratorium will extend the pain for lenders. Banks will eventually need to set aside more provisions for these bad debts and, in general, this will disrupt banking and possibly the entire financial system, ”he says.
Proponents of a blanket moratorium argue that while banks’ net profits have been declining, they are still profitable and they can afford to impose another blanket moratorium.
Not so, say the bankers, as the implications can be vast.
“Banks must continue to make profits to maintain sufficient capital levels to, in turn, maintain a certain level of strength, especially in these times of pandemic, where more capital allocation is needed due to uncertainty.”
According to this banker, there is also the perception that banks keep the profits they make. “This is not true since most of the profits are shared between the shareholders,” he adds.
In the most recently ended quarter, the two largest banks in the country reported a drop in their net profits year-on-year.
Malaysian Banking Bhd
said it made a net profit of RM1.95bil for its last quarter, compared to almost RM2bil before.
In the case of CIMB Group Holdings Bhd, the drop in revenue was much more pronounced, with the banking group reporting a net profit of RM194.4 thousand versus more than RM1 billion during the same period a year ago.
Bankers insist they cannot afford another blanket moratorium because, if they are not perceived as strong, long-term depositors can also start to aggressively withdraw their funds and place them elsewhere.
“What happens then?”
“And if borrowers don’t pay us back for an extended period of time, where will the sustained cash flow come from to lend to new borrowers? We must continue to lend to ensure that the economy continues to function. Therefore, those who can return the money must do so and a general moratorium is not necessary and it is certainly not feasible, ”adds another banker.
The CEO and CEO of real estate firm Paramount Corp Bhd, Jeffrey Chew Sun Teong, says the blanket moratorium was the main contributor to (some) workers who didn’t want to go to work.
“Some used the excess funds to speculate in the stock market … get them back to work and make sure they keep working so they can do something productive for the country,” he tells StarBizWeek.
However, Chew, former CEO of OCBC Bank (Malaysia) Bhd, admits that the automatic blanket moratorium made at the start of the pandemic was generally a necessary measure, as “we could not anticipate the impact of the pandemic at that time.”
“But now we see that we have a relatively low death rate, nothing compared to the Spanish flu of 1918, so people should move on with their lives and their businesses and stop relying on moratoriums.
“Of course, some sectors that have been hit hard since March with no recovery in sight should have some leeway on their loans, but for the rest of Malaysia, it’s time to get back to work, embrace the new rules. and start paying off their loans, ”adds Chew.
“If you don’t, new projects and companies will be deprived of the fresh funding needed to create new jobs, etc.”
Chew, 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 situation, and that it is vital to protect and preserve lenders’ capital and liquidity buffers to ensure that the loan process is not interrupted.
For now, it remains to be seen what will happen.
A recent investment note from AmInvestment Bank notes that at the end of September, the percentage of loans in Malaysia under bank payment assistance programs ranged from 8% to 15%, and this was much lower than what that was seen in the six years. month of automatic general moratorium.
He 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.
“In October there was an increase in provisions by 5.5% month-on-month, and we continue to expect banks to make a greater anticipation of their provisions, conservatively reserving more provisions as management overlaps in the remaining months of the fourth quarter of 2020 “.
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