YOURSAY | Loan moratorium: Pay nothing now, suffer more later

 

YOURSAY | ‘Having more to pay back later will only increase the rakyat’s debt burden.’

Opting for loan moratorium will cost borrowers more - Bank Negara

Malaysia Bharu: The loan moratorium will definitely increase the cost of borrowing if interest is charged during the moratorium. If interest is charged during the moratorium period, that sum will be added to the outstanding loan balance at the end of the moratorium.

Depending on the type of loan, the accumulated interest when added to future accruing interest could have a compounding effect throughout the balance of the loan tenure, including the extended tenure, thereby a hefty increase in the cost of borrowing.

That is why the moratorium and/or any reduction of monthly instalments will be at the expense of extending the loan tenure and will have an adverse effect on borrowing cost.

This can be overcome by increasing loan repayments (to reduce loan tenure) once the borrower is in a better position financially.

Banks must facilitate for increased payments during the balance of loan tenure. Some banks will deny random changes in repayment amounts to suck the borrower dry. Be careful.

BrownCheetah9736: The commercial banks are greedy and not helping at all. They can easily sacrifice some profits by waiving the interest charges for three months and even granting credit cards interest-free for six months up to say, a RM2,000 threshold.

The Finance Ministry could then also partially compensate the banks through tax credits.

We have a finance minister from a commercial bank protecting vested interest and we have a useless central bank not helping at all except by stating the obvious - that effectively, all loans must be repaid and interest charges accumulate.

LimeGoat2442: Someone who has your best interest at heart will want you to pay down your loans as fast as you can (simply speaking for the average Malaysians like us, not including sophisticated schemes to leverage debt to optimise returns, etc).

Delaying loan repayments and having more to pay back later will only increase the rakyat’s debt burden. What’s more, with their depleting Employees Provident Fund (EPF) balances.

Smart and good governments will just give cash handouts or subsidise companies to retain their employees, just look at the many examples around the world.

The majority of the money circulation from the government aid packages is just between the rakyat and his or her own loans and/or EPF account, increasing debt burden and reducing retirement savings.

What kind of bonkers assistance is this?

Stand For Truth: The Perikatan Nasional (PN) government is helping banks in the guise of helping Malaysians who are struggling during this Covid-19 pandemic.

They are also making Malaysians poorer by withdrawing their EPF to help themselves with their own money whilst the government basks in glory and sings their own praises that they are helping Malaysians.

The PN government is nothing but like the naked emperor too full of himself to even realise he is deluded.

King Kong: You can’t force the banks to stop interest and repayment. Imagine if all the six or seven major banks did that and there was a sell-off on their stocks in the market.

The cascading loss will be bad for investor confidence. The problem will trickle all the way down to the everyday person.

Manjit Bhatia: @King Kong, absolutely. It'll crush the economy even more than it is crushed now.

You will, sooner or later, probably later, be faced with another crunching problem. The worst timing is when the economy is on the mend, in relative terms.

The US Federal Reserve is already hinting at monetary policy tightening whilst the Biden administration is also hinting it may tighten fiscal policy gradually once the economy reaches a certain sustainable level. Meaning the possibility of hiking the official interest rate. Meaning banks and other financial institutions will also follow suit.

Imagine this scenario in Malaysia, where the economy is scraping near the bottom of the Malacca Strait. Or should that be the Klang river? What this means is inevitably more pain for the economy and its people.

With millions of people without jobs (how many unemployed 'exactly' is something national statisticians will admit if they're truthful, they do not know), jobs must come back in a way never seen before, the economy keeps growing strongly, foreign direct and portfolio capital floods into Malaysia (as long as the cost of the factors of production remain competitive and taxes and the world economy is growing strongly again) and there is a spark of re-inflation in the economy (which means business profitability on the one hand but costlier living standards on the other hand).

One thing's certain: You have a regime that couldn't run a curbside cendol store profitably, let alone an entire economy.

The Last Samurai: I have a few questions. How much did our government subsidise or fund this initiative? I would say zero? Am I correct?

We still need to pay additional interest, and not getting a single sen from the government with this initiative.

2 Cents: @The Last Samurai, the answer is zilch. No subsidy whatsoever. It's merely a repayment moratorium that will not cause your account to go into arrears when you stop servicing the loan. You have to pay interest for the deferment.

And the bank loses out on not being able to charge compounding interest besides incurring higher cost of funds. Both the borrower and the bank lose.

The only winner is the government by claiming that they've helped you by using your money.

Dr Raman Letchumanan: There are two types of instalment payment calculation. One like car loans, the principal amount on which the interest rate is applied remains the same like in the calculation in the fact box of this news report. This is the simple interest method and the issue of compounding of interest doesn't arise here.

The other more common loan like housing is by the reducing balance method, where the interest is calculated on the reduced principal outstanding with monthly or yearly rest, that means at the end of each month or year. Many do it daily as it reflects the true cost of funds.

With the relief of no compounding of interest being offered, it transforms into the simple interest method for the moratorium period as the principal remains fixed. A slight loss for banks.

Usually, the total payment at the same interest rate is less for the second method, compared to the first because the principal remains the same throughout the period.

Malaysian Melting Pot: Ordinary citizens are more concerned if they and their family members can have a meal for the day or go hungry. This is about the now, not one month later or six months later. Just imagine not having any money to buy food.

The last thing they want to worry about is the macroeconomics of the country when they are starving. They don't give a toss about the share price of the banks or the consequences. All they want is to survive.

Deferring loan repayments will at least remove the issue of not having a roof over their head while they sort out the challenge of putting food on the table.

Anonymous 79: No wonder banks can still make profit last year. PN never really helped us. Kita jaga kita. Now part of our EPF money is almost finished. What else can we rely on? - Mkini