Moratorium extension a win-win for banks, borrowersJuly 29, 2020 @ 6:37pm
KUALA LUMPUR: The government's decision to extend the loan moratorium with targeted bank assistance to individuals and small-medium enterprises (SMEs) is a win-win situation for both parties, say economists.

Prime Minister Tan Sri Muhyiddin Yassin today announced the moratorium extension and targeted bank assistance, a move that will benefit about three million individuals and SMEs.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the government is trying to strike a delicate balance between supporting the needs of those who are affected by Covid-19 and the health of banks which is also crucial to the Malaysian economy.

"When the economy is weak, typically the non-performing loan (NPL) will rise and therefore, banks will have to make loan loss provisions," he said.

He said the current lower interest rate environment can also reduce banks' net income margin (NIM).

"It is a tough operating environment for the banks. With a targeted approach, I think it is a win-win for both (banks and borrowers)," he added.

Sunway University Business School economics Professor Dr Yeah Kim Leng said NIM would likely be compressed due to the moratorium extension.

"Bank's profitability will be impacted but as long as they can sustain their operation without incurring losses, then it should not affect the bank's future prospects," he said when contacted.

He said the banks might also experience higher provision for bad loans as most borrowers suffered in income losses, pay cut and unemployment.

"Worst case scenario, banks need to look at the impact of the NPL in their capital adequacy and liquidity. They suffer from deferred loan servicing as NIM will be stretched over a longer period, depending on the financial capacity of the borrowers," he added.

AmBank Group chief economist Dr Anthony Dass said the impact on banks earnings would be significantly much lower than the modification loss in the second-quarter of 2020 under the automatic loan moratorium.

"Banks will need to set aside some additional provisioning for these loans under restructure and reschedule (management overlay)," Dass told the NST.

MIDF Research economist Mazlina Abdul Rahman said the extension and targeted assistance would provide breathing space for individuals (retrenched or required to accept pay cuts) and businesses (loss income) affected by the Covid-19 pandemic.

"This will also be helpful for the tourism-related sector in particular which is struggling to make a comeback as borders remain closed. Domestic tourism activities are gradually improving, however it would not be sufficient in the longer-term," she said.

She said the local economy was on a gradual recovery as reflected in some of its macro indicators such as industrial production, exports and retail sales.

"Industrial production and retail sales recorded after fall in its latest available data while export has rebounded to positive territory.

"Hence, we believe that this is a better option than to continue providing the moratorium on a blanket approach," Mazlina added.

Juwai IQI chief economist Shan Saeed said the decision was part of the government's economic strategy to provide relief to people so that they can manage their cash flow and finances in order to navigate through the challenging times.

"Globally, many governments are moving towards expansionary fiscal policy. Governments in advanced economies are also focusing heavily on fiscal policy.

"Expansionary fiscal policy and accommodative monetary policy begin to take a huge role in the new economic era to put economies back on track," he said.

However, he said the economy would take time to recover and every policy lever used by the government would require between 12 and 14 months before making an impact.