14 Aug 2021
I refer to Bank Negara Malaysia’s governor Datuk Nor Shamsiah binti Mohd Yunus’ statement of 13th August 2021 whereby she had said that a full interest waiver during the loan moratorium can result in serious negative consequences for banks in the long term and more difficulties for the people.
What most businesses desire now is not for interest-free loan, but merely for interest to be charge at cost without bank profit during the moratorium period. This means interest rates that that take into account bank operation cost plus FD placement cost to the bank, minus bank profit.
As the Governor herself has admitted, many of the said negative consequences she mentioned are uncertain: banks’ own credit ratings may be downgraded, liquidity stress could be triggered, and depositors may have concerns. At best, these are calculated estimates that only become evident in the long term. Contrast this with the effect on the rakyat if the interest rate remains as it is: empty bank accounts, businesses shuttered and no money to pay the rent. The negative consequences here are certain, immediate and imminent.
It is hard for the banks to lose money. Those who take out a loan will still make payment, and interest will still be charged on the loans. However, in times of national crisis like these, profit should not be part of the banks’ priority. Any amount more beyond the profit margin should be minused out of the interest.
Before the pandemic hit, Overnight policy rate (OPR) was at 3.5%, and in the previous year it was at 1.75%. This infers that it is generally 50% cheaper in cost of fund to banks and financial institutions. However banks didn’t reduce and in R&R facilities they even increased their bank rates (supposedly due to their view of higher risk). This could be shown in the majority of the banks’ earning in Q1 of 2021. This is evident that the banks only care about profit.
The contribution of SMEs to our national GDP was 38.9 per cent in 2019. There are over 960,000 SME type businesses in Malaysia, which employs more than 7.5 million Malaysians. Despite being the backbone of the nation, this sector is collapsing fast. They can’t pay out staff salaries and/or office and premise overhead, let alone pay the exorbitant loan interest the banks demand.
The negative consequences that Bank Negara governor mentioned that banks may be exposed to are actually long term risks. But the rakyat are facing a very a very grave threat that will hit in the short term; these are not just risks but a certainty.
BNM should be more understanding. SMEs and the rakyat are not asking for free loans. True, there is no free lunch in the world. What most businesses desire now is not for interest-free loan, but merely for interest to be charge at cost without bank profit during the moratorium period.Bank should have the heart to help the people especially the SMEs in these time of dying needs, instead of worrying about profit.