KUALA LUMPUR: It is vital for banks to carry out remedial action to prevent an increase in non-performing loans (NPL) following the hike in the Bank Negara Malaysia's overnight policy rate (OPR), an economist said.
Universiti Kuala Lumpur's Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said this was crucial not only to cushion the impact of the OPR adjustment on the people, but also to spare them from the possibility of facing legal action, such as bankruptcies.
He said banks and borrowers took proactive action after the government decided to extend the moratorium on loan repayments in 2021.
"At the time, banks proactively reached out or were contacted by customers seeking help, from rescheduling loan repayments to extending their loan period.
"While the OPR adjustment announced by the central bank is smaller at 25 basis points compared with a cumulative 100 basis points throughout last year, banks, nevertheless, must again reach out to customers to work on a win-win solution."
He said those directly affected by the OPR hike to three per cent were borrowers of loans with floating rate.
He said following the outbreak of the Covid-19 pandemic, many borrowers had switched to fixed-rate loans to avoid any possible fluctuation in the interest rate.
"The recent OPR adjustment has minimal impact, although cumulatively the total increase of 125 basis points has brought the OPR to its 2019 level of three per cent.
"Nonetheless, three per cent OPR this year is not the same as it was in 2019. With higher inflation rates and rise in the cost of living, the OPR adjustment will affect the people's purchasing power.
"Moreover, household income has not seen an increase in tandem with the rise in the cost of living over the last three years."
Aimi Zulhazmi said it would be far-fetched to link the OPR hike with an increase in individual bankruptcies.
He said this was based on the effects of OPR adjustments on the economy and the people last year.
In July last year, Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus dismissed claims that hiking the OPR would lead to a rise in individual bankruptcies in the country.
She said bankruptcy was financial institutions' last resort after all other loan-repayment recovery efforts had been made to recover the money loaned to borrowers.
Another economist expressed concern about the timing of Bank Negara's decision to raise the OPR as the country is seeing a downward trend in inflation, on top of a sluggish economic growth outlook for this year.
Universiti Utara Malaysia's Associate Professor Dr Irwan Shah Zainal Abidin said the OPR hike would affect the cost of living as people would have to pay more to service their loans even though many were still struggling to recover from the impact of the Covid-19 pandemic.
Irwan, who is former director Asean Research Institute of Banking and Finance director, said the OPR hike came as a surprise as many experts, including him, were expecting it to happen later in the year.
"The OPR hike is unreasonable because we are already seeing a downward trend in inflation. So why increase the OPR?
"If we look at the country's economic growth projection this year, it isn't too promising. Even though it is growing, it is at a moderate rate.
"There is a risk of economic downturn, especially in developed countries, in the third and fourth quarters of the year.
"I think Bank Negara shouldn't increase the OPR to prepare for this economic risk," he told the New Straits Times yesterday.
He said although the OPR hike might be a reflection of Bank Negara's confidence in the country's economic performance, individuals and small businesses serving loans would struggle.
"This does imply that Bank Negara has confidence in our economy, particularly in the first quarter of this year.
"I see this as an action taken to align with the monetary policy tightening trend in other countries, especially developed ones.
"Even though inflation is seeing a downward trend, the cost of living is increasing, and people are still not relieved from the pressure of rising costs.
"So the increase in OPR will add pressure to the people, especially those who have loans. This will further increase their cost of living burden."
He urged the government to focus on increasing the people's income to ensure the economy returned to pre-pandemic levels.
"This OPR hike will not have a significant impact on the country's macroeconomic performance at this time.
"But if we look at it from another perspective, in terms of the people's economy, it is still not back to the pre-pandemic state.
"The government's efforts must be focused on increasing the people's income because as it is, it is still not sufficient and it has remained stagnant."