Consumers risk bankruptcy if loan moratorium not extended

by ASILA JALIL/ pic by TMR FILE

CONSUMERS adversely affected by the Covid-19 pandemic risk facing serious financial issues including bankruptcy if a loan moratorium extension is not granted, said experts.

The pandemic has seen many companies implementing pay cuts and layoffs in order to cope with the Movement Control Order (MCO), which brought many businesses to a sharp halt as only essential sectors were allowed to operate in order to curb the spread of the virus.

The Federation of Malaysian Consumers Association (FOMCA) president Datuk Dr Marimuthu Nadason said individuals and businesses need at least another three months of the loan moratorium, in order to get back on their feet and find employment as the economy slowly recovers.

“For more than three months, many of them were out of income or had their monthly wages slashed. Some people could not even survive for more than two months when they are out of work,” he told The Malaysian Reserve (TMR).

“If the moratorium is not extended, by the first quarter of 2021, some businesses may face bankruptcy and it would also take a toll on younger individuals.”

Bank Negara Malaysia (BNM) imposed a six-month moratorium on loan and financing repayments from April until September 2020 to ease cashflow for borrowers affected by the pandemic.

Following calls from the public for an extension, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the decision to extend the moratorium lies with the banks. The ministry is also actively engaging with lenders over the matter, he added.

TMR had in May reported the Credit Counselling and Debt Management Agency (AKPK) as saying it received up to 14,000 calls per day, particularly during the earlier stage of the MCO in March, as anxiety over job and financial security ran high. Prior to the MCO, the agency received an average of 800 calls per day.

Malaysia’s jobless rate jumped to a 30-year high of 5% in April as unemployed persons rose 48.8% year-on-year to 778,800 due to closure of business operations during the MCO, government data showed.

Institute for Democracy and Economic Affairs senior economist Adli Amirullah believes households affected by the pandemic may need even more than a three-month moratorium extension as other external factors are also at play.

He said Malaysia may be able to recover from Covid-19 within a year or two, based on the aftermath of the 1997/1998 Asian financial crisis and the 2008/2009 global financial crisis, but this hinges upon the global economic landscape.

“Given the upcoming election in the US with the unsettled US-China trade war, we may receive the negative spillover effect from these global phenomena on our economy despite our best efforts to recover from the pandemic,” Adli told TMR.

“Hence, for any household that is negatively affected by this pandemic, they may need more than six months to recover. On the other hand, it is also important to take into account the impact of the loan moratorium on our financial market.”

The end of the moratorium will mean lower discretionary income for households, who will find it difficult to make loan repayments and require an extension until they are financially stable.

Employees in badly hit sectors such as airlines and tourism may face difficulties in servicing their debts, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said. He encouraged these borrowers to meet with their financiers to restructure their existing financing facilities.

“Keeping quiet and sweeping the problems under the carpet would only make things worse as banks will proceed with the necessary steps to recover the borrowings.”