Monday, August 8

Coping with Covid-19 financial stress


The onset of the pandemic has created an unforeseen burden – be it the lack of income, an increase in expenses or the general combination of both.

Are Malaysians managing their monies differently post-Covid? Not really, according to the RinggitPlus Malaysian Financial Literacy Survey (RMFLS 2020).

A total of 76 per cent of Malaysians claimed that they are in control of their money (a slight increase from last year’s 69 per cent), the survey showed.

However, 46 per cent (from last year’s 43 per cent) of Malaysians also spend exactly what they earn or more, while 53 per cent revealed that they would not be able to survive more than three months with their savings.

The survey, released earlier this week, unveiled more alarming figures among the youth (respondents under 35) as 60 per cent of them admitted that they would not survive longer than three months.

Hann Liew

“When the Movement Control Order (MCO) was enforced in March, we experienced a significant halt in our nation’s economy,” said Hann Liew, co-founder and executive director of RinggitPlus alongside the release of the survey.

“It affected the income of many Malaysians who could not go to work, had to take pay cuts, or were even let go as companies were forced to downsize.

“For the past two years, we had hoped that our survey results would act as a wake-up call but it really was this tragic event in our lives that became the true test to our personal financial habits.”

From the pandemic, 27 per cent of Malaysians realised the importance of an emergency fund. The automatic loan moratorium also pointed to this sentiment as the Association of Banks Malaysia (ABM) reported that over 7.7 million borrowers took the loan moratorium.

Meanwhile, 16 per cent of the RMFLS respondents admitted that they are not prepared to resume their repayments.

On a brighter note, the pandemic also caused a shift in their spending behaviours. 88 per cent of Malaysians have stated to be consciously choosing contactless or cashless payment methods. In fact, 90 per cent of the respondents say that they have e-wallets on their mobile devices.

“We hope that when our economy slowly recovers, Malaysians would take their finances more seriously so that we can all be more prepared in case the next rainy season ever comes,” Liew added.

SOURCE: RinggitPlus

Households facing increased financial stress

According to Bank Negara Malaysia (BNM), some households are facing an increase financial stress, despite a cautious stance that reflected in the weaker loan growth amid movement restrictions and lower discretionary purchases.

As of June this year, household debt moderated to four per cent compared with 5.5 per cent in 2019, the central bank said.

“This was mainly reflected in the weaker loan growth for the purchase of residential properties and motor vehicles in the first half 2020 (7.2 per cent and -0.9 per cent, respectively; 2019: 8.5 per cent and minus 0.4 per cent, respectively).”

Household leverage increased the most among borrowers earning less than RM5,000 per month in the first half of 2020, amid income prospects that are more uncertain and liquidity buffers for borrowers earning less than RM3,000 are already stretched, BNM said in its Financial Stability Review – First Half 2020.

BNM said the higher leverage has been mainly attributable to an increase in borrowings for the purchase of homes earlier in the year and in June following the reintroduction of the Home Ownership Campaign (HOC).

Despite expectations for labour market conditions to improve going forward, borrowers with variable income and/or employed in more adversely impacted sectors will also likely face continued challenges. For these borrowers, the targeted assistance extended up to the first quarter of 2021 will provide further temporary financial relief.

On the other hand, government measures such as the wage subsidy, and reskilling and upskilling programmes will serve to improve future employment and income prospects, which, in turn, will support debt serviceability.

Based on enhanced financial framework, BNM estimates that household borrowers who may experience difficulties, in servicing their debt as a result of income and unemployment shocks are unlikely to account for more than 15 per cent of total borrowers.

Among these borrowers, about one per cent of total borrowers with three per cent of outstanding household debt are expected to default after accounting for financial buffers held and targeted repayment assistance extended to borrowers in need.

How the moratorium matters

One cannot talk about enduring through financial distress in 2020 without touching on moratoriums, an initiative introduced on March 25 by Prime Minister Tan Sri Muhyiddin Yassin which meant the postponement of loan repayments, the restructuring of credit card balances and business loans for six months following the Covid-19 pandemic.

This blanket moratorium ended on September 30 and was replaced with targeted repayment assistance until December 30 although some banks are extending it until June next year.

As Malaysia transitions into targeted repayment assistance following the end of the six-month blanket loan moratorium, BNM noted that about 500,000 applications for repayment assistance have been received.

Of that number, 98 per cent have been approved, the central bank said in a statement.

The 500,000 applications are merely a sixth of the three million borrowers BNM had anticipated will need help under the targeted loan repayment assistance.

The central bank also noted that “there also continues to be a steady increase in borrowers choosing to resume payment of their monthly instalments”.

“For applications that are still being processed, banks have provided their commitment to inform borrowers of the application results as soon as possible.

“BNM will closely monitor banks’ practices in this regard. Borrowers facing difficulties with their banks can contact BNMTELELINK at,” it said.

BNM advised borrowers who can afford to resume monthly repayments to do so, as this would reduce their overall debt and borrowing costs.

“Although broader economic conditions are improving, some borrowers may still face repayment challenges if their circumstances change in the coming months.

“If this happens, borrowers can still engage their banks to discuss alternative repayment arrangements. During this period, banks will continue to offer various forms of repayment assistance to borrowers.”

The central bank also gave its assurance that applications for repayment assistance made before June 30, 2021 will also not appear on a borrower’s CCRIS records.

“Borrowers may also seek guidance and explore alternative options for assistance with AKPK (Agensi Kaunseling & Pengurusan Kredit),” it added.

Jessica Chew

Heeding the call for help

BNM said the banking sector remains committed to helping households and businesses who need assistance after the automatic moratorium ends.

“To this end, banks have introduced a range of packages for affected borrowers. These include targeted extension of the moratorium, as well as repayment flexibilities to help borrowers based on their specific financial situation,” it said.

Borrowers who have lost their jobs this year and are still unemployed will be able to freeze loan repayments by a further three months, while borrowers whose salaries have been cut due to Covid-19 will be offered reduced loan instalments in proportion to their salary reduction, depending on the type of financing.

“This targeted approach ensures that more resources are available to assist those who are vulnerable. It also enables the banking sector to better support the broader economy through continued lending,” said the central bank.

Borrowers, especially those affected by the movement curbs due to a spike in Covid-19 cases in Malaysia, can still seek help from their respective banks on their loan repayment.

“Borrowers need not be anxious. The repayment assistance is ongoing and will extend well into 2021.

“We understand that circumstances and uncertainties could change down the road and people can reach out for assistance anytime,” Bank Negara Malaysia deputy governor Jessica Chew said in a Bernama interview.

Although the automatic loan deferment moratorium, the subsequent targeted moratorium and repayment assistance are unprecedented, banks have mobilised all their resources to handle the situation.

“The banks are very well positioned to respond to borrowers’ needs. All banks have dedicated resources and re-engineered their processes to review borrowers’ applications,” said Chew.

EMCO, CMCO no deterrent to aid

Even in areas where the Enhanced Movement Control Order (EMCO) and Conditional Movement Control Order (CMCO) are imposed, borrowers can reach out to the banks via online or phone call.

“BNM has a dedicated page ( where borrowers that are in need of repayment assistance can obtain more information.

“Borrowers can also fill in a form on the website with a few simple information which we can use to arrange call-backs from their banks,” said Chew.

As at October 9, a total of 640,000 applications for assistance were received. Approval rate stood at 98 per cent, of which 40 per cent secured extension of moratorium and 60 per cent reduction in instalment.

In fact, Chew said, applications for assistance in repayment started coming in even before the blanket moratorium ended.

She stressed that a targeted repayment assistance is best suited now as it enables the banks to extend temporary relief to borrowers that need it the most.

The banks are also better prepared, having put in place the infrastructure to help borrowers, compared to when the pandemic first hit.

This sentiment was echoed by the Association of Banks in Malaysia (ABM) and the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) – even when the Covid-19 cases spiked, leading to another bout of EMCO in certain regions.

“Banking institutions are ready to assist borrowers/customers in areas which are under CMCO or EMCO,” it said in a statement.

“Borrowers/customers in CMCO or EMCO areas who face difficulties in making loan/financing repayments should immediately contact their banks to request for repayment assistance.

“Banks are ready to facilitate requests for repayment assistance to suit borrowers’/customers’ financial circumstances. Borrowers/customers can contact their banks via email or telephone if they are unable to have face-to-face engagements due to restriction of movement.”

For the safety of banks’ borrowers/customers and employees, banks in the CMCO areas are operating with heightened vigilance and adherence to the Covid-19 standard operating procedures (SOPs).

Borrowers/customers in the affected areas are advised to check on their respective banks’ websites for information on any changes in operating hours or arrangements for over-the-counter services.

Borrowers/customers can also continue to perform banking services at all self-service terminals, such as automated teller machines (ATMs) and cash deposit machines (CDMs) located in the CMCO areas.

Tengku Datuk Seri Zafrul Tengku Abdul Aziz

Govt considering targeted loan moratorium

In its latest update, the government is considering introducing an “enhanced” targeted loan repayment moratorium under the 2021 Budget to help the rakyat cope with the Covid-19 pandemic.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said a more targeted assistance would be the way forward compared with an automatic blanket moratorium.

Tengku Zafrul said the government realised that not all needed the automatic moratorium.

“Based on the survey that we conducted with Merdeka Centre, which ended on October 30, 70 per cent of respondents said they do not need the moratorium.

“So we are focusing on those who really need this assistance, especially those who have lost their jobs or whose wages have been affected. It does not matter if these people come from the B40, M40 or T20 group,” he said in New Straits Times interview earlier this week.

“To do an automatic moratorium for all, I think it is not right. It has to be targeted. With more targeted measures, I want to widen the scope, if that is possible. That is the plan. We will discuss with the banks. We have to wait for the budget.”

Tengku Zafrul said based on Bank Negara Malaysia’s data, 640,000 Malaysians had applied for repayment deferment for loans and financing up to Oct 9 this year. This equals to an approval rate of 98 per cent.

On reports that banks were making profits despite the six-month blanket moratorium, he said they need a strong cashflow to lend more to the people in need.

He said while the hit on non-performing loans (NPL) was not big at the moment, banks were just postponing the problem and it was not a long-term solution.

“Some people are forecasting that by the end of the moratorium, banks’ NPL will increase by up to four times. Let’s say the 640,000 people who applied for assistance, these will contribute to the NPL. And this then will affect the banks’ profitability.

“That is why you still see banks making profits because they are just postponing the problem. What you don’t see is the cash flow.

“When there is a disruption in the banks’ cash flow, how are they going to lend to companies that need financing? This is another angle that we have to look at.”

KC Lau

Important to heighten address financial responsibilities

With all the help extended by regulators and banking players, the ball is now in consumers’ court as to how they they will handle their financial responsibilities going forward in the new normal.

Personal finance author and educator KC Lau believes that applying for targeted repayment assistance is not such a bad thing.

“Malaysia’s six-month automatic moratorium which recently ended has saved countless bank customers from defaulting on their repayments as many Malaysians suffered through salary cuts and retrenchments.

“Now that we are in the recovery phase, some may still have issues resuming their financing commitments. After all, not everyone has had their full salaries reinstated, and not everyone who lost their jobs found a new one.

“But instead of being fearful and not knowing what to do next, this is a great time to take charge of your finances and kickstart your path to recovery.

“One of the main options provided by the banks is the option to refinance or restructure your current financing facility (or facilities). Yes, this usually isn’t a good thing – but extraordinary times call for extraordinary measures.

“BNM has made it clear that refinancing or accepting any form of repayment assistance during this period will not appear in your CCRIS report.

“Thus, it will not affect your financial health in the eyes of the banks and financial institutions, as long as you continue to make prompt repayments based on the revised repayment schedule.

“The aim of refinancing or restructuring your current financing is to reduce the financial commitment you bear each month, so that it is within your means while still being able to afford everyday spending.

“Each bank will assess customers on a case-by-case basis – after all, some may not need as much assistance as others – which makes this process potentially time-consuming.

“On top of that, your bank may offer more than one option, so you can choose the one that you’re most comfortable with financially. This is why going to your bank early to discuss your options is vital.

“If you believe you need help, don’t hesitate to contact your bank – and don’t be embarrassed to do so. Some things, such as a global pandemic, are simply not within our control.”

Additionally, affected individual bank customers and SMEs alike can always approach the Credit Counselling and Debt Management Agency (Agensi Kaunseling dan Pengurusan Kredit; AKPK) to obtain further advice or alternatives.

Lau also said it was an important time to review your budgets – can you spend less each month by making small tweaks without drastically changing your lifestyle?

The amount you save here may be small, but check again over six or 12 months and you’ll be surprised how quickly these small savings can grow.

“By taking charge of your finances, you’re already taking huge steps towards regaining control of your money.

“But it is crucial to remember that you are not alone in facing financial difficulties during this pandemic. So don’t be ashamed to seek help – we’re all in this together.

“Therefore, if you believe you will need help, speak to your banks now and explore your options. You’ll be doing yourself and the banks a huge favour by approaching them now.”

AKPK sees debt repayment back to normal in October

Signs are encouraging. The Credit Counselling and Debt Management Agency (AKPK) sees debt repayment returning to normal in October among its over 300,000 customers under its debt management programme, following the expiry of the automatic moratorium period on September 30.

Chief executive officer Azaddin Ngah Tasir said AKPK was happy to see things moving to normal as per pre-pandemic, but acknowledged that it is still early days.

“This could be from their savings during the automatic moratorium, for not having to pay for the last six months. We hoped it is not the case and they are really able to pay because of good cash flow.

“Nevertheless, we are prepared to help in case they have issues in future months,” he said during a webinar organised by Bank Negara Malaysia (BNM) in conjunction with the financial literacy month entitled #BePrudent: Take Control of Your Finances.

Azaddin said during the automatic moratorium, AKPK had also provided moratorium for customers under its debt management programme and after its expiry, had identified a number of those affected by Covid-19 to be given targeted assistance in terms of payment holiday extension of three months or reduced payment.

On BNM statistics, he cited the percentage for extension was about 40 per cent against 50 per cent for reduced payment, but for the AKPK customers which were more vulnerable, the agency saw the ratio at 80:20.

He said that in facing financial challenges, there was a need to have a change in mindset, whereby the new normal is not only in health but also in financial.

“Learning from the Covid-19 experience, we can actually be happy with less.

“We can live a simpler life, for example, during the recent Hari Raya when we went through a stress-free festival with just our loved ones, with no need to ask for festival advance.

“We do not really have to spend a lot but just concentrate on what matters.

“This is a good lesson that we can have more with less,” he said.

Azaddin pointed out that lower income people were more vulnerable because they do not have enough buffers, therefore, it is a must for them to make the right decisions.