KUALA LUMPUR, Aug 8 — The number of Malaysians becoming bankrupt and the number of companies closing down or winding up may increase when the current moratorium on bank loans ends, two economists said.
Sunway University economics professor Yeah Kim Leng said that the loan moratorium allows financially-distressed borrowers to avoid becoming bankrupt by postponing loan repayments, but said this would mean that there could be more bankruptcies once the moratorium period ends, The Sunday Star reported today.
“However, the moratorium also masks the true extent of financial distress faced by borrowers.
“A spike in bankruptcies could therefore occur at the end of the period especially if the borrowers suffer permanent losses in employment or business income,” Yeah was quoted saying.
The Edge recently reported a decrease in bankruptcy over the past five years. In 2016, there were 19,588 cases; this went down to 18,227 cases (2017), 16,482 (2018), 12,051 (2019), and 8,351 in 2020. This year, the numbers also decreased to 2,954 between January and April.
News reports have said a possible reason for the lower 2020 figure despite the Covid-19 pandemic’s economic impact is that the government had in 2020 increased the minimum debt levels from RM50,000 to RM100,000 before bankruptcy proceedings could be started through bankruptcy petition filing. This is applicable until August 31, The Edge had said.
Yeah suggested that the reduced number of bankruptcies filed last year could be due to the delayed effect of financial distress.
“Typically, creditors would seek to exhaust all means of recovering the debt from the borrower before they resort to bankruptcy filing,” he was quoted saying.
AmBank Group chief economist Anthony Dass noted the drop in bankruptcies in Malaysia since 2018 was despite the economy experiencing its worst contraction in 2020 at -5.7 per cent since the 1997 Asian financial crisis.
According to Dass, the closure of courts and insolvency offices in 2020 due to the movement control orders (MCO) also slowed bankruptcy filings.
He pointed out that the winding-up of companies may pick up in the future especially when the loan moratorium ends as courts and insolvency offices would have resumed their usual operations and recovery processes by financial institutions are expected to pick up.
He also pointed out that the loan moratorium introduced in July this year for individuals and companies is not available for borrowers who had already not paid for more than 90 days or three months or those facing bankruptcy or winding-up proceedings.
“What can happen going forward is that those who are not eligible for the moratorium are likely to fall into the bankruptcy category if their outstanding balance is more than RM100,000,” Dass was quoted saying by The Sunday Star.
Dass also said borrowers who have unpaid debts below the RM100,000 figure would not be under bankruptcy, but would be blacklisted, with The Star further noting that they would have difficulties seeking loans and may likely borrow from money lenders.
The Edge had previously also reported that the number of companies that had compulsory winding-up petitions filed against them had been increasing from 1,157 in 2017 to 1,419 in 2018, 1,966 (2019), before declining to 1,190 (2020) and was at 192 from January to April 2021.
Apart from winding-up cases, Yeah told The Sunday Star that non-performing loans could also be used to measure financial distress, referring to bank loans with late repayments or which a borrower is unlikely to make full repayments for.
Yeah noted that the gradual upward trend in the value of non-performing loans, with June 2021’s figure being RM30.2 billion or a 16.2 per cent increase compared to June 2020 “is a sign of more financial distress especially when the extended loan moratorium ends”.
Yeah said businesses would have smaller hopes of recovering if the lockdowns continue longer due to their working capital and reserves being depleted and core staff possibly being let go.
“Even when the pandemic subsides to allow for more businesses to reopen, the enterprises may not have sufficient working capital to resume operations unless they have access to new equity capital or borrowings.
“We may therefore experience a rise in company winding-ups, foreclosures and bankruptcies,” Yeah was quoted saying by The Sunday Star.
Yeah suggested the government take measures to help affected businesses recover including channelling more resources to the debt workout unit coordinated by Bank Negara Malaysia to rescue companies with strong recovery prospects.
Dass suggested the government help companies that are looking for working capital to sustain their businesses to prevent them from being wound up, and that this would also help save jobs for Malaysians.