KUALA LUMPUR: The government has been cautioned against allowing Employees' Provident Fund (EPF) members to use their savings to support loan applications.
Former second finance minister Datuk Seri Johari Abdul Ghani said this would result in borrowers being burdened by interest payments charged on the loans.
He warned that enabling loans supported by EPF savings would be challenging for banks as it entailed credit checks and legal agreements.
He said it would be simpler to allow people to withdraw their savings from the retirement fund, adding that, however, the withdrawals should only be permitted for emergencies such as health or education expenses.
The government had proposed allowing EPF members to use their Account 2 savings for bank loan applications as an alternative to calls for another round of EPF withdrawals.
Johari, who is Titiwangsa member of parliament, said permitting such loans would result in borrowers being liable to pay a significant amount in interest.
"If you take a loan of RM70,000 and pay interest at, say five per cent a year, that works out to RM3,500. Across 10 years, that's RM35,000. Whereas EPF cannot guarantee you a return of five per cent on your balance.
"The net amount from a RM70,000 loan after deducting interest payments is RM35,000. In such a case, it would make more sense for a contributor to withdraw RM35,000 directly from Account 2. He wouldn't have to pay a sen in interest," a Malay daily quoted him as saying.
He pointed out the serious repercussions of the previous administration's decision to permit blanket EPF withdrawals during the Covid-19 pandemic, particularly as the withdrawals forced EPF to liquidate long-term investments, adversely affecting its ability to generate returns.
"EPF's investment outlook is based on the long term. It will calculate the number of members who will retire over a certain period and liquidate accordingly".
Johari explained that if a large number of EPF members were to withdraw their savings abruptly, it would cause a significant disturbance to the retirement fund's investments, consequently impacting its future returns.
He also said allowing individuals who were not financially impacted by the pandemic to withdraw their EPF savings was one of the factors that led to inflation.
"Why did we allow those who weren't laid off or had their salary cut to withdraw their EPF funds?"
The withdrawal of RM145 billion from EPF during the pandemic era caused an influx of money supply in the market, ultimately resulting in inflation.
Malaysia's inflation rate rose from 1.14 per cent in 2020 to 3.23 per cent in 2022 when the country lifted all Covid-19 restrictions.
Johari said blanket loan moratoriums compounded the inflationary pressures.