A blanket loan moratorium is something automatic, given without any due diligence on whether the borrowers really need it, simply because it is automatic.
The Covid-19 pandemic affects peoples and businesses differently. It is indeed a gross injustice when a university lecturer, for example, who receives the same quantum of monthly salary during the pandemic, as before the pandemic, is given an automatic moratorium.
This is because his current situation is not worse off compared to his situation before the pandemic. And compared to those who experienced a reduced or zero income during the pandemic, his situation is still better-off, as he would still be able to pay his loans just like what he has been doing before the pandemic.
Giving automatic moratorium to people who can afford to pay their loan, even during a pandemic, is akin to encouraging them to “abscond” from their obligation of paying back their loan, albeit temporarily.
The adage that if you borrow, you must jolly well pay back your loan is lost in a blanket moratorium for people who can afford to service their loan. And that is why no countries in the world has ever introduced a blanket moratorium during the pandemic with the exception of Malaysia, which introduced it from April to September last year at the height of the pandemic.
An online poll conducted by the Credit Counselling and Debt Management Agency on April to May last year, showed 12 percent of borrowers opted-out from the blanket moratorium.
For those who took up the moratorium, only 21 percent spent the money on daily essentials, while 48 percent built an emergency fund, 16 percent for investment purposes, 11 percent for further borrowings and 4 percent had no plans.
The government, having realised this mistake, has adamantly refused to reintroduce blanket moratorium which is the right and smart thing to do. Instead, it has asked Bank Negara Malaysia (BNM) for a targeted moratorium for borrowers who faced difficulties in paying their loans due to a reduced or zero income brought about by the pandemic.
And this is what BNM has been doing since the blanket moratorium has elapsed in Oct 2020. According to its Governor, Datuk Nor Shamsiah Mohd Yunus, all banks already have their payment assistance plans, including targeted loan moratoriums, which can be offered to borrowers who have lost their jobs or suffered a reduction in income.
As at Dec 31, 1.4 million borrowers have applied for repayment assistance with their banks with a 95% approval rate. Only 55% of borrowers had chosen an extension of the moratorium, with the remaining 45% opting for a reduction in monthly instalments, even for households and borrowers in lower-income segments, including the B40.
“This shows that borrowers are not asking for a blanket moratorium. They don’t want a one-size-fits-all solution. They want tailored assistance that meets their financial circumstances.
“A targeted approach is better than a blanket moratorium as it puts the choice in the borrower’s hands to make their own financial decisions. It’s important for them to make informed decisions based on their own financial conditions,” she said, stressing that help continues to be available for those in need of repayment assistance, while those who can afford to repay their loans should do so.
At this juncture an important question to be asked is during the blanket moratorium why did those who can afford to pay back their loans didn’t opt-out from the moratorium?
It could be due to a spending binge or extravaganza to buy a second, third or fourth car, or using it as seed money for a new business amid the economic downturn.
This spending extravaganza could be one reason why Malaysia’s inflation, as measured by the consumer price index (CPI), galloped 4.7% year-on-year in April 2021 – the highest since 2018.
In 2018, the CPI was 0.97 percent which then fell to 0.66 percent in 2019 and -1.14 percent last year. This year, the CPI is expected to hit 2 percent because of the effect of the cumulative stimulus spending of the government to help the country cope with the pandemic, but already in April it is at 4.7 percent.
With inflation inching upwards, it would be difficult for the government to dish out more stimulus in the future when the country needs it without overheating the economy. And when you have an economic downturn coexisting with a high inflation, that’s a phenomenon called stagflation which had made a disappearance act in the world since the 1980s.
This article does not mean to say that we don’t need moratorium at this still difficult time when the country is facing the challenge of a spike in Covid-19 daily infection brought about by the mutation of the virus causing the emergence of some tougher variants.
What we need is not a blanket moratorium but a targeted one, which is still on-going, for the rakyat and businesses who continue to face difficulty in paying back their loans because the pandemic has caused them to experience reduced or zero income.
Which is why EMIR Research has earlier proposed that a three-month moratorium or a 50 percent reduced loan repayment over six months be granted and targeted for those truly in need in conjunction with the introduction of the Full MCO (FMCO).
This is the way to go, judging by the way developed countries offer moratorium to their citizens and businesses. From day one of the pandemic, these countries have been offering selective or targeted moratorium to their citizens and businesses first for six months, which was then extended to December last year. This was again extended until July this year because their economies and the global economy have yet to recover fully from the pandemic.
Moreover, according to experts, under the present circumstance, banks all over the world nowadays are more sympathetic and understanding towards borrowers who face difficulties in general in paying their loans.
Thus, what the government is doing now by allowing a targeted moratorium of three months or reduced loan payment for six months under the current FMCO instead of a blanket moratorium is in line with what the First World economies are doing.
Proponents of a blanket moratorium including some politicians are pandering to the rakyat with a smack of populism, perhaps in an attempt to win votes rather than having a genuine interest and concern for the rakyat.
It is a different matter if what they do is to champion the interest of those who were rejected for the targeted moratorium despite fulfilling the requirements for getting a moratorium. This will then put banks on their toes in not wilfully rejecting a valid request for moratorium.
Meanwhile, those who suggest that the government should just force their way in making it compulsory for banks to grant a blanket moratorium to their borrowers do not realise the danger of their proposal.
In modern banking, it is important that the conduct of monetary policy (anything to do with money and banking) which is managed by BNM with all banks under its ambit, must be done independently of the government.
Forcing the government to impose any monetary and banking regulations on the banks’ throat is seen as interfering with the country’s monetary policy, and the market will react badly, and this in turn won’t be good for the country’s economy. And because of the globalised world of money and banking, the market here refers not only to the financial market in Malaysia but whole global financial market.
Just look at President Erdogan of Turkey who removed his central bank governor Naci Agbal in March – the third to be fired in two years – just because the latter like his two predecessors had hiked interest rates to counter a sharp rise in inflation, which is against Erdogan’s unorthodox approach to monetary policy based on keeping interest rates low to avoid inflation.
This puts the lira on a tailspin which in turns knocks investor confidence at a crucial moment for Turkey’s economy and accelerates the already rampant inflation, which could force the government to resort to capital controls or emergency rate hikes.
Jamari Mohtar is Director, Media & Communications at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.