KUCHING: The Overnight Policy Rate (OPR) hike will not lead to bankruptcy for businesses and individuals with a sound financial position and a manageable debt level.
Universiti Malaysia Sarawak (Unimas) economist Jerome Kueh said the recent OPR hike from 2.75 per cent to 3.00 per cent will have some effect on the economy, but the impact on bankruptcy may not be as severe as some people believe.
“The OPR hike will cause the interest rate to surge, which also indicates that the cost of borrowing will become relatively higher. This will stress the borrowers due to increased interest payments or a greater cost of financing the loan,” Kueh said.
He said some borrowers may have difficulties addressing the higher cost of borrowing but this may be a temporary period for them to adapt to the changes.
A check by New Sarawak Tribune has shown that despite Bank Negara Malaysia (BNM) having raised OPR rates by a cumulative 100 basis points last year over four Monetary Policy Committee meetings, there has been a steady decline in Stage 2 loans from over 8 per cent at the beginning of 2022 to just 5 per cent by March this year.
Simply put, Stage 2 loans are underperforming loans whose credit risk has increased significantly since initial uptake, and usually in such cases, banks would need to provide lifetime expected credit losses from all possible default events over the expected tenure of the loan.
Stage 2 loans are also a leading indicator of credit health. Banks can only reclassify a loan from Stage 2 to Stage 1 if borrowers have been able to service their loans for six consecutive months, while more prudent banks would only reclassify if the loans have been serviced for 12 straight months.
As such, the loan servicing rate among borrowers has been improving despite the OPR hikes of 2022, coupled with the fact that loan repayments have exceeded loan disbursements for both the household and business segments.
Moreover, most of the borrowings for lower income households are fixed-rate loans, which means the monthly repayment amount would not be affected despite the central bank’s adjustment of the OPR.
“Bankruptcy will not arise under these circumstances if borrowers have a solid financial base and are able to withstand increases in interest rates,” Kueh said.
He added that the gradual increase of the OPR indirectly provides a duration for businesses and individuals to adjust their financial strategies to accommodate the changes in the cost of borrowing.
“We have to look at the broader perspective where the aim of the interest rate hike is primarily to address the fundamental issue of inflation,” he said.
At a press briefing recently Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus dismissed any notion that the increase in the overnight policy rate (OPR) has led to a rise in the number of bankruptcy cases.
