Beware of the Possible Surge in Bankruptcy Cases

Without another extension of the six-month loan moratorium, there is a high chance that many companies and individuals will file for bankruptcy. For individuals, bankruptcy numbers mirror the unemployment rate and due to the chaotic economic atmosphere, there is a projected increase in corporate insolvency.

The local industries were badly affected by the disruptions to the global supply chains caused by the weakening Chinese imports and tourism.  Now, many businesses are tightening their credit management processes to minimise bad debt risks as a global recession is approaching.

According to Atradius, a provider of trade credit insurance, surety and debt collection services, the Asia-Pacific region experienced the highest rise in insolvencies so far this year at 4.2% partly because of its close relationship with Cina.

In Singapore, the number of bankruptcy cases surged to its highest in years even before the recent pandemic wreaked economic havoc on the world. Singapore Law Ministry’s Insolvency Office found that there has been a 47% increase in the number of individuals filing for bankruptcy compared from a year earlier to 434 in January. This is the highest since October 2004.

Companies in Malaysia need to be prepared once the loan moratorium ends.

According to Bloomberg, companies in liquidation in Singapore soared to 287 in 2019, the highest since records began in 2005. The same scenario is set to be reflected in Malaysia. Though there is no available data on bankruptcies past August 2019, the Malaysian Insolvency Department recorded 80,625 cases from 2015 to August 2019.

Here are the key factors behind high personal bankruptcy in Malaysia:

• Credit card debt
• Car loan
• Insufficient knowledge of personal financial management

The Assistant Governor of Bank Negara Malaysia, Adnan Zaylani Mohamad Zahid has said that it has “no intention of extending the moratorium as it would have repercussions that we want to avoid”.

The Malaysian Trades Union Congress (MTUC) has put the number of Malaysians losing their jobs until April 2020 at 800,000. It is possible that there will be one million unemployed Malaysians in the coming months. Those who are still employed might experience severe pay cuts.

Recently, MTUC urged for the extension of loan moratorium for at least another six months, especially for the targeted group of workers who are still incapable of paying off the loans.

Meanwhile, the Association of Banks in Malaysia has advised small and medium enterprises and those who are facing problems in repaying their loans once the moratorium expires to consult with and seek guidance from their banks. 

Source: The Sun Daily

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