To help troubled borrowers, fix the economy

 

Any assistance that banks extend to troubled borrowers should bring long term solutions, according to experts.

PETALING JAYA: Any move to help borrowers by making it easier for them to repay their loans must be accompanied by long-term strategies to improve the economy, according to experts.

Otherwise, it will lead to abuse and long-term problems, Pacific Research Centre of Malaysia principal adviser Oh Ei Sun and Universiti Teknoloji Mara senior lecturer Firdausi Suffian told FMT Business.

They were commenting on a call by Prime Minister Anwar Ibrahim for banks to continue offering loan repayment assistance to individuals as well as small and medium enterprises (SMEs) that were still facing financial difficulties.

He said such assistance should include strategies to help affected borrowers reschedule and restructure their loans.

Oh warned that these “short-term fixes” could morph into long-term practices. “(It will reach a point where) lenders will hesitate to give out loans,” he said.

He said these measures could be very much like the loan moratoriums granted to borrowers to help them through the economic fallout of the pandemic.

“The right long-term fix is to restructure the economy to address the prevailing disparity among the many socio-economic classes,” he added.

While he expressed support for Anwar’s proposal, Firdausi also warned that some borrowers could take such assistance as a “free ride” even if they had the ability to repay their loans promptly.

This, he said, could add a burden on financial institutions.

“Such assistance was necessary as part of the effort to ease the burden on borrowers (affected by the pandemic),” he said.

“But are banks ready to offer more of such assistance, and how do we tell who are those who really need it?” he asked.

In any case, Firdausi said, the proportion of non-performing loans was still low. As of April, it was only 1.8%, according to data from Bank Negara Malaysia.

He said the main objective of any restructuring should be to help SMEs through a bad patch rather than merely reducing interest rates.

“Loan repayment assistance should be a temporary measure only,” Firdausi added.

He said the underlying issue was economic development. “Wages remain low so we need to address that. Otherwise, it will cause a vicious cycle (of borrowing and repaying) which, at some point, will see borrowers unable to repay their loans,” he added.

He said social policies that could act as a buffer to those in need should also be strengthened.

Center for Market Education CEO Carmelo Ferlito said that apart from providing loan repayment assistance, banks could also offer advice on restructuring and refinancing in light of changes in interest rates and personal exposure.

“This should be part of a strategy to improve financial literacy in the country, which is very poor now as evident from the level of household debt in Malaysia,” Ferlito told FMT Business.

“Banks should not dish out loans too easily and end up putting citizens in a more fragile financial position,” he added. - FMT