Savings should reward savers

Banks should pay better interest rates for savings and reduce non-performing loans

COMMENT

By TK Chua

KUALA LUMPUR: It is good to hear our DPM Ahmad Zahid Hamidi focusing on economic and financial management. Recently he made two points which I think are pertinent. First, he called on Malaysians to improve their savings rate and second, he urged the banking industry to reduce the incidence of non-performing loans (NPL).

The talk on economics and finance is like a breath of fresh air that the nation badly needs.

It is true we have low savings because we choose to consume more due to lavish lifestyles. On the other hand, our low savings rate could also be due to high taxes and low incomes.

In fact, it is not difficult to discern why our savings rates are low when we look at the level of household debt to GDP which stands at more than 85 per cent, among the highest in the region. How can Malaysians save when a big portion of their income is used to service debt?

It is easy to urge people to save more, but savings have much to do with inflation and interest rates besides income levels and lifestyle.

I think savers in this country are not given adequate reward for their sacrifices. If interest earned hardly outpaces inflation rates, who really would want to save more?

Banks in Malaysia are colluding to exploit savers by paying them at least 20 to 25 per cent less on interest rates. Bank Negara Malaysia must answer why FD rates on new funds is 4.25% but renewed FD rates with the same tenure is only at 3.1%. Why can’t banks pay interest rates based on market rates? Why must they make savers switch their FD accounts from one bank to another to earn higher rates?

On compulsory savings such as EPF and Lembaga Tabung Haji, again the returns must be reasonable and above long-term inflation rates. There must be serious attempts made to preserve and protect the long-term value of the ringgit. Otherwise, forced savings are just another form of “national service” to provide a cheap source of funds to borrowers at the expense of savers.

On non-performing loans (NPL), I think it is better to manage the loan portfolios than try to reduce the NPL after it has crept up to unsustainable levels.

It is good for the DPM to highlight the perception that borrowers generally expect government-owned banks like BSN and Bank Rakyat to write off bad loans.

Well, I guess it is time to not just correct perceptions but to also enforce strict lending guidelines when granting loans especially to those with “connections”. Rightly, all banks, with cooperation from Bank Negara Malaysia, should profile NPL borrowers to prevent bad borrowers from repeatedly getting away with not settling their loans.

T K Chua is an FMT reader