October will see litmus test of household and business financial health

This article first appeared in The Edge Malaysia Weekly, on September 28, 2020 - October 04, 2020.
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IN a few days, the true health position of households and SMEs (small and medium enterprises) will be unveiled.

Just how many Malaysians will be able to service their loans when the blanket automatic six-month loan repayment moratorium ends on Sept 30?

Thus far, only 26,000 SMEs and 354,000 individual borrowers have indicated that they need financing assistance come October.

The numbers as revealed by the banking fraternity last Wednesday surprised many, as they were considerably fewer than expected .

According to the Ministry of Finance, as at July 24, Malaysia’s blanket moratorium had benefited 7.7 million individuals (or 93% of individual borrowers) and 243,000 SME borrowers (or 95% of total SME borrowers). This means that nearly eight million borrowers were under the automatic moratorium then.

Even Bank Negara Malaysia had forecast the targeted loan moratorium would attract three million individuals and borrowers in total — eightfold more than the 380,000 who had indicated they would need assistance come October.

Does this mean the current situation is a lot better than believed, and borrowers more resilient than perceived, or is the worst yet to come?

Banking analysts believe the situation is still too early to call.

“We have to wait until October and the true position of the borrowers will be made known then. Knowing Malaysians, some will not address their financing needs until the very last minute,” observes a banking analyst.

“Banks are bracing themselves for some asset-quality deterioration as we enter into this new quarter without the blanket loan moratorium.”

The latest stimulus package may, however, give businesses and individuals a little reprieve from the Sept 30 deadline, which in turn may alleviate some of the banking asset-quality concerns.

Prime Minister Tan Sri Muhyiddin Yassin announced last Wednesday a targeted wage subsidy programme that will run from October to December, which is expected to benefit 1.3 million employees.

Companies that continue past the Recovery Movement Control Order to experience a decline in revenue of at least 30% from last year will be eligible for a wage subsidy of RM600 per month per employee for a period of three months with a cap of 200 employees per company.

Cash disbursements under the Bantuan Prihatin Nasional 2.0, amounting to RM7 billion, will also be disbursed to the B40 and M40 groups.

Separately, the Finance Ministry announced last week that the blanket loan repayment moratorium had a total value of RM89.6 billion as at Sept 11.

While the value was made known, it is unclear how many of the borrowers were individuals or SMEs.

Of the RM89.6 billion loan value, RM31.4 billion, or 35%, benefited businesses and RM58.2 billion, or 64%, individuals.

A check of several individual banks’ data shows that a high percentage of their SME portfolio did not opt out of the automatic loan moratorium scheme.

Some 65% of Hong Leong Bank Bhd’s SME customers had loans under the auto moratorium as at Aug 28.

For Malayan Banking Bhd (Maybank), it was 85.6% as at Aug 14, and RHB Bank Bhd, 80.2%.

At least 73% of CIMB Group Holdings Bhd’s commercial banking loan book was under the loan moratorium as at June 30. The bank’s SME portfolio is parked under the commercial banking segment.

At a media briefing last Wednesday, bankers appeared confident that SMEs were coping. According to Domenic Fuda, Hong Leong Bank’s CEO, based on data, “SMEs seem to have handled the situation better”, as they have been in regular discussions with their respective relationship managers at the banks.

On borrowers’ request for further financial assistance, Fuda said industry data shows that approval has been given to 99% of SMEs and 98% of retail customers.

“The rejection rate is extremely low. We are not making the process difficult,” he maintained.

Asked for comment, SME Association of Malaysia president Datuk Michael Kang said many SMEs were reluctant to go to the bank because they were concerned that they might be required to provide a slew of documentation before receiving approval and having, for example, “to prove that sales had declined below a certain level” (see “SMEs still struggling with cash-flow issues” on Page 22).

At the media briefing, bankers maintained that it was a misconception that it was tough for borrowers to obtain financing assistance during this difficult period.

CIMB’s group CEO Datuk Abdul Rahman Ahmad said the application process was expected to take one to five days for individual borrowers, and three to 14 days for SMEs after the completed applications were received by the banks.

The banks have contacted more than two million borrowers to offer them loan repayment assistance after Sept 30, managing to speak to 1.4 million of them. More than 380,000 contacted customers confirmed that they required loan repayment assistance.

“All the banks are committed to helping borrowers pre- and post-auto moratorium. We urge borrowers who need help to come forward and reach out to their banks for assistance,” Rahman stressed.

He pointed out that it was important for Malaysia to transition out of auto moratorium to a targeted moratorium so that those who needed help would get it.

At the same time, banks can refocus their intention on lending so that the economy recovers from the pandemic.

“It’s important to get the data of those who can pay and those who cannot. Those who cannot pay, the banks will certainly help them,” he said.

Azaddin Ngah, CEO of Agensi Kaunseling dan Pengurusan Kredit, gave the assurance that those applying for repayment flexibility would not be negatively tagged in the CCRIS (Credit Central Reference Information System) reports.

Also present at the media briefing were Bank Islam CEO Mohd Muazzam Mohamed; Bank Rakyat CEO Datuk Rosman Mohamed; Datuk Hamirullah Boorhan, Maybank’s head of community financial services Malaysia; and Rakesh Kaul, RHB Bank group head of retail banking and asset management.

The flexibility offered by each bank will take into account the specific circumstances of borrowers, including allowing them to pay only the interest portion of the loan over a period of time; lengthening the overall period of the loan to reduce monthly instalments; or providing other forms of flexibility until they are in a more stable position to resume repayments in full.

There is also the SME Soft Loans Funds under Bank Negara Malaysia, where the cumulative applications approved by local banks and accepted by SMEs totalled RM10.4 billion as at Sept 4, 2020.

These funds — which have benefited 22,688 SMEs — include the Special Relief Facility, Automation and Digitalisation Facility, All-Economic Sector Facility and Agrofood Facility.

 

 

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