Unrestricted Thoughts

THERE is an opportunity in every crisis.

Fortunes are lost and made in times of turmoil and looking at the stock market, the trading opportunity for profit has made many people brave enough to take a position for a handsome return in a very short time.

The pain from the economic shock caused by Covid-19 is palpable.

Jobs and livelihoods have been lost, and with that income for many people.

The restrictions placed on operations have curtailed productivity and led to billions of ringgit evaporating over a very short time.

During this period, credit too will be in demand.

Banks saw huge amounts of working capital drawn down by companies in March just as the crisis started to unfold.

April’s figures will give a wider comprehension of the depth of the pain being felt, even as more parts of the economy start to crank back into life with the easing of the movement control order and with businesses starting to operate again.

Like any functioning economy, the need for capital and credit will play a crucial role.

Companies starved of cash will need credit lines to be available for them to have any chance of surviving the global economic recession.

The question is what will be the mood of banks?

Faced with a six-month moratorium where they cannot collect payment for a lot of the loans given out, it is understandable if banks are clamping up.

Stories of more stringent requirements are making their rounds and if credit lines start to dry up, then that will spell a big problem for the economy.

Imagine if car buyers are told they need a certain amount of money in their bank account to prove repayment ability before a loan is approved?

Or if a housing loan too falls under similar circumstances.

Then what about a company that has exhausted a large amount of money paying for overheads?

Not everyone has a hoard of cash stuffed in their bank accounts ready for deployment.

Clarity is something every lender desires.

The ability for companies and individuals to repay on loans taken will be important in the lending appetite among financial institutions but there is precedence on why faith in a recovery can lead to large fortunes being made.

In the midst of the 1997/1998 Asian Financial Crisis, banks were badly hit and are no where as capitalised as they are now.

Companies and individuals too screamed for liquidity back then and that led to a public berating of one bank in particular.

That bank, which was a steady yet unspectacular bank prior to the Asian Financial Crisis, decided to go against convention and open up its lending taps.

In doing so, it captured vast market share from the others and is today among the top banks in the country, making its shareholders very wealthy at the same time.

Banks today, like always, need to manage between risks and opportunities.

There is no doubt credit lines will be tight in the early days of the recovery but eventually, like history has shown, conditions will return to normal.

Even in the new normal, the continuity of life for a business or individual will mean getting back towards how it was.

It is a question of which bank or banks brave enough to take that chance for future rewards.