Banks remain prudent
Loan applications will increase but disbursements will be low, says an economist
PETALING JAYA: The overnight policy rate (OPR) cut has thrust both banks and potential lenders in a state of limbo.
As much as banks would like to disburse more loans, they are being prudent as they brace for a spike in non-performing loans (NPLS), especially when the six-month loan moratorium ends in September.
Households and businesses are also holding back from applying new loans on fears of uncertain economic conditions led by the Covid-19 pandemic.
While the rate cut is a relief to those who are currently financing their loans, UOB Kay Hian head of research Vincent Khoo noted that there is just not enough demand for loans.
“The economy has been hit hard, evident in the layoffs and pay cuts. The OPR cut is not a significant measure to revive the economy,” he said.
In May, loan applications fell 39% year-onyear (y-o-y) . Total loans approved sank 54.4% y-o-y, while loan disbursement declined 25.8% y-o-y in May.
It was previously reported that application for consumer loans fell 58.5% y-o-y as consumers were not spending on big ticket items, such as houses and vehicles, while business loan applications were down 13.9%.
Ambank Research chief economist and economic action council secretariat member Anthony Dass concurred that banks would remain prudent.
“Typically, OPR cuts will entice businesses to borrow more, but this depends on their business prospects. Loan applications will be high but disbursements will be low,” he said.
Economists are expecting a pause in rate cuts this year and suggest that other policy levers could be considered to reinvigorate the economy instead.
The economy has been dampened by weak demand as a result of the weak job market, which in turn requires different policy prescriptions, they say.
According to CGS-CIMB, the cue for further monetary policy action rests on the pace of recovery in household and business demand, as well as the labour market in the second half of 2020.
Malaysia’s unemployment numbers climbed to 5% in April, and this figure could potentially rise, given that retrenchments filed with the Social Security Organisation’s (Socso) Employment Insurance Scheme rose in May and June.
“With the latest cut bringing the cumulative reduction this year to 125 basis points, we think monetary settings have been sufficiently recalibrated to reflect the severity of the economic downturn caused by Covid-19.
“While we think the monetary policy stance has shifted to neutral, policymaking will be heavily data-driven due to significant uncertainty surrounding Covid-19’s trajectory and economic recovery,” said CGS-CIMB.
The research house expected a sharp but incomplete recovery in the second half of 2020, with gross domestic product (GDP) to contract by 3.5% in 2020 before expanding 7.5% in 2021.
This implies that the economy will continue to operate at a negative output gap until the second half of 2021.
On Tuesday, Bank Negara cut its overnight policy rate (OPR) for the fourth time this year, bringing it to a record low of 1.75% from the previous 2%.
The central bank is of the view that the OPR cut of 25 basis points will provide additional policy stimulus, on top of the other financial and monetary measures announced, to accelerate the pace of economic recovery.
Meanwhile, Publicinvest Research highlighted that an interest rate environment that is too low may be counterproductive as it could encourage excessive risk taking in speculative investment, a seed for inflation to spiral.
“Successive stimulus programmes rolled out should produce tangible results in the third quarter, which forms the basis of our expectation for interest rate normalisation in
“Successive stimulus programmes rolled out should produce tangible results in the third quarter.” Publicinvest Research
KUALA LUMPUR: The moratorium on loan repayments by financial institutions, which took effect on April 1 as part of the Prihatin Rakyat Economic Stimulus Package (Prihatin), is estimated to be worth Rm51.4bil as at July 6.
Finance Minister Tengku Datuk Seri Zafrul Aziz said of the total, Rm17.9bil was utilised by the business sector while Rm33.38bil was utilised by the public.
Despite being an interim measure, the granting of the moratorium was timely and able to assist the impacted groups, especially those who had lost their source of income, he said when presenting the latest report on the implementation of Prihatin and the National Economic Recovery Plan (Penjana) on his Facebook page yesterday.
The report was the 12th by the Economic Stimulus Implementation and Coordination Unit Between National Agencies (Laksana).
Tengku Zafrul, however, reminded borrowers that the moratorium period would end on Sept 30.
“For those who are facing financial difficulties and may need to restructure and reschedule their facilities, they are advised to get early targeted assistance.
“This can be done by consulting their respective financial institutions or the Credit Counselling and Debt Management Agency (AKPK) for advice,” he said.
On the Bantuan Prihatin Nasional (BPN) aid, Tengku Zafrul said about 30,000 recipients received their payments via Bank Simpanan Nasional (BSN) branches nationwide between June 26 and July 6.
This raised the number of BPN recipients to 10.245 million with total payments of Rm10.92bil, representing a 97.5% implementation rate.
On the BPN appellants group who were paid starting June 24, he said 140,000 single individuals and households had received the BPN assistance totalling Rm120mil as at July 6 from an allocation of Rm139mil. — Bernama