Better to start repaying your loans if can

Published on: Sunday, August 23, 2020

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THE three-month loan moratorium will come to an end within a few weeks and some have called for it to be extended.

Like most Malaysians, I am glad that the prime minister had announced its extension as well as the option for flexible repayment, albeit on a targeted basis.

These will help those who have been affected by the economic downturn brought about by the Covid-19 pandemic, such as the unemployed or those who have had to take pay cuts. While many people experienced hardship during the Movement Control Order period, the current situation is different.

I understand the government’s desire to provide a helping hand to as many Malaysians and businesses as possible. But look at today’s economy. Although some sectors such as tourism continue to suffer due to the pandemic, shopping malls and restaurants are now packed with people. Traffic jams have returned. Online businesses continue to do a brisk trade. There are reports of beaches becoming overcrowded so much so that some have suggested restricting access to them. Malaysians who usually go on holidays in foreign countries are now opting for staycations.

The government has decided to reintroduce hotel quarantines for Malaysian returnees, which guarantees room occupancy for participating hotels. I am not saying that everything has returned to normal and that banks should start demanding that their borrowers resume paying loan instalments in full. Far from it as some continue to experience hardship. They should be assisted.

However, for a majority of those who have the means, they should start repaying their loans. Otherwise, this may lead to an imbalance of credit supply in the economy.

Those in the Top 20 income group, who also enjoy the moratorium, use their money for things like speculating in the stock market, while at the same time, banks have less lending capacity to provide new loans to businesses. This is a poor use of the country’s resources. Malaysians, as depositors, are most likely concerned about the protection of their deposits. Banks can pay interest on and honour withdrawals of deposits because they are backed by high-quality income-generating assets. However, if borrowers do not repay their loans, these make for bad quality assets. We should remember what the country went through during the Asian financial crisis.

Nizam