Should banks extend moratorium? | Malaysian Institute of Estate Agents

Should banks extend moratorium?


LETTER Despite the large drop in banks' second quarter earnings, there are people who say that banks are still making a profit, and should extend the loan moratorium across the board.

This is despite the announcement that banks will offer a loan extension to those who need it the most, for example, the unemployed.

However, as an accountant and one who has audited banks, I believe that there are a number of facts about banking that are forgotten or ignored.

First, banks have a duty to depositors. If borrowers do not repay their loans, how can banks honour deposit withdrawals? Just like any other business, banks need cashflow and liquidity.

Likewise, if banks extend the moratorium across the board on the pretext of helping borrowers, this raises questions about the asset quality of banks.

Banks cannot tell which loans are good or bad. Depositors have no idea whether their money is in safe hands.

Second, Malaysian banks are owned by the people. Some might feel that banks are making too much profit.

There are many that are controlled by or have substantial ownership by government-linked investment funds, such as Khazanah, Employees Provident Fund, Permodalan Nasional Bhd and Tabung Haji.

Even if people do not own any bank stocks, all Malaysians are indirect shareholders of banks.

If banks do not generate profits and declare dividends, how can these funds sustain the high returns that we expect and enjoy each year?

Third, the business of banking is about promises. If borrowers can walk away from their promise to repay their loans, or if the government can instruct banks to offer a moratorium, contrary to what's provided for in loan agreements, this throws out certainty in contracts.

If businesses and people have little trust and belief that the other party is going to honour his promise, then Malaysia is not a good place for doing business, and it will be difficult for the economy to grow.

Fourth, banks are like public utilities, providing critical services to the economy. When they do not function as they should, the economy suffers.

And while it is tempting to heed calls for promises like "free water" and "lower electricity tariffs", we know that these are bad ideas.

Proponents might say that this will ease people's burden and lower the cost of doing business.

Really? If anything, these measures promote wastage and they lead to the underinvesting in capacity and good service.

Think about the number of water cuts we have had in recent years because of how state water companies are operated.

Finally, do we really want to harm and endanger the banking system by throwing out a good credit culture and discipline?Do we really want to follow Greece and Argentina, which have gone through banking and economic crises?

Have we forgotten about what happened to Malaysia during the Asian financial crisis because of weak banks?