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Wednesday, 25 March 2020

(Tradeview 2020) - April Fool’s Came Early : MYR 100 Billion Bank Loans Deferment Policy By Government

Dear fellow readers, 

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I am sure most by now would be have heard about a “wonderful” new policy by Government which allows people and businesses to enjoy a 6 months period moratorium. Now, I do not usually comments on politics as I am a financial writer, not a political writer. 

However due to the urgency and request for clarification by many of my readers, I felt obligated to write an immediate post to enlighten my readers due to the misconception painted to the public by the Government especially where it is being trumpeted like a “Great Escape” for the people from their current predicament. 

Our new PM said RM100 billion worth of credit restructuring will result thanks to the Moratorium on bank loans repayment for 6 months. Now first thing first, it is important to understand what Moratorium means. A quick search on Mr. Google shares :

After studying and understanding this so called policy to help the people, we find this to be a half past six measure / half baked policy to assist the people. In a same away, this is exactly like the EPF Account 2 assistance aid to the Rakyat. 

Let me explain, before clarification from BNM, many thought the interest during 6 months deferment period of all loans (except credit card) will not be charged. Turns out, whilst both principal and interest are suspended for the 6 months period however the interest owing still runs including the 6 months period which is accrued to be pay later. 

In simpler terms, the policy only defers 6 months but this 6 months interest unpaid during deferment will be charged later on to the people and business. 

It is no wonder the banks shares perform well today, because it doesn’t affect the banks at all as the  Bank’s cashflow in this 6 months will be mitigated by the lifting of their reserves by BNM and in fact may even get extra income from people and businesses who don’t understand the real impact because the loan tenure is extended and additional interest income can be collected for the 6 months deferment. A simple explanation below  :

Now Ali have 30 months loan outstanding, because of Covid 19, the Government imposes lockdown.  Ali cannot work and have no income, or Ali work from home, and Ali’s Boss forced to continue paying salary even though Ali’s Boss shop is close and Ali Boss has no income. How long can Ali and Ali’s Boss sustain? 3 months, 6 months, or 12 months?

Hence the Government imposes moratorium for 6 months on banks loans as relief to Ali and Ali’s Boss (Individual and SME). This is great news right? But no, turns out Ali and Ali’s Boss will still need to pay the interest on the loan for the 6 months moratorium. Which means Ali’s original interest on the loan for 30 months has now been extended to 36 months! 

Same like the EPF Account 2 aid, the Government permits the people are to withdraw their OWN MONEY during this difficult time. It is in fact actually using our own future savings for old age to be used presently. Yet, the Government shouts about the potential RM40 billion flooded to the market. This is not a form of stimulus at all. These funds are already within the financial system of the country. It is with the EPF who uses our savings and funds to invest and support financial & the housing markets. So what is new?

Policy makers, please fee free to read comments of the Rakyat before making half baked policies.

Covid-19: Mixed reactions over EPF withdrawal scheme

Relief at the expense of EPF savers

Unlike other countries such as US, Japan, UK, Italy, Singapore and others, the government steps in and absorbs the cost for the suffering people and business instead of passing the cost to the people.  Example, in the US, the government student loans for 2 months and whilst it is suspended in the 2 months the interest for loan repayment is waived, not accrued!

The government should have a skin in the game, instead of asking the people and business to shoulder the financial hardship from being locked down unable to make a living. This is why the Rakyat and Businesses pay taxes, for the Government to use the taxes to take care of the Rakyat  and Businesses during difficult times

Quoting a reader of mine “ It’s a big disappointment and for good 3-4 pager of notices in the Circular , This key point on interest on accrued interest is only at the footnote” 

As I am writing, a fresh news is out saying MCO is extended another 14 days to 14th April. From ‘‘ 1. warm water stops Covid-19, 2. EPF Account 2 withdrawal releases RM40 billion into the market and 3. 6 months Bank Loan Moratorium releases RM100 Billion to the market,  indeed, April Fool’s came early this 2020.


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