KUALA LUMPUR: Cooperative Commission of Malaysia (CCM) is coming down hard on some cooperatives over the high interest rates charged on loans taken by civil servants.
Eight cooperatives have to-date been suspended temporarily for failure to comply with CCM's guidelines.
A CCM spokesperson told StarBiz that the suspension would be lifted once the cooperatives involved were able to comply with the guidelines and restructure their lending methods.
Dr Yeah Kim Leng says the impact on banks’ revenue will not likely to be sizeable.
The suspension of some of the eight cooperatives first came into effect on Dec 1.
The spokesperson said as the members of the eight cooperatives had already had their loans approved, only those that failed to comply with the guidelines in the future would not be successful in their loan applications.
CCM recently issued more directives to cooperatives and banks that contravened its guidelines, telling them to discontinue lending or make monthly salary deductions on loans taken by civil servants.
The spokesperson added that the directives were meant only for loans issued by the cooperatives on Dec 1 and Dec 15.
Currently, National Co-operatives Organisation of Malaysia (Angkasa) is the cooperative that has been mandated by the Finance Ministry to make salary deductions on loans taken by Government servants.
To date, there are 577 cooperatives involved in lending activities, of which 32 use banks for such purposes. Of the 32, eight were suspended for failure to comply with CCM guidelines.
The eight are Koperasi Bersatu Tenaga Malaysia Bhd, Koperasi Pendidikan Islam Malaysia Bhd, Koperasi Wawasan Pekerja-Pekerja Bhd, Koperasi Kobaru Bhd, Koperasi Pendidikan Usahawan Bhd, Koperasi Putri Terbilang Malaysia Bhd, Koperasi Wawasan Malaysia Bhd and Koperasi Serbaguna Pekerja-Pekerja Malaysia Bhd.
Industry observers believe the move by CCM would have minimal impact on civil servants' refinancing ability and household debt.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the move would not affect Government servants' refinancing ability.
“It will not exacerbate the current household debt level as the banks and cooperatives will have to adopt a more cautious approach now that deductions at the income source is no longer available, thus increasing the risk of delinquency,'' he said.
On the impact on banks' revenue, Yeah said it was not likely to be sizeable as the cooperative market was not large and that alternative arrangements, such as deductions from bank accounts, could still be made as long as the borrower was credit-worthy.
Malaysian Rating Corp Bhd (MARC) vice-president and head of financial institution ratings, Anandakumar Jegarasasingam, concurred that the move was not likely to have any immediate impact on Government servants' refinancing ability.
“In the absence of direct debit for repayments, it is likely that borrowers could be tempted to stretch the time taken for repayments and perhaps, at occasions, even default on repayments.
“In the near term, the lack of direct debit facility would make collections harder for cooperatives and hence lower their appetite for such lending. Over the long term, the viability of these cooperatives' societies itself would be tested,'' he noted.
Anandakumar said the revenue impact to the banking sector was likely to be negligible as most borrowers would eventually approach the banking sector for credit facilities.
“The most significant risk for the banking sector would be loan defaults by cooperatives that borrow from the banks. However, at least in the near term, a massive bank loan default by the cooperative societies appears fairly unlikely,'' he noted.
Consumer Association of Penang president S.M. Mohamed Idris said he supported the move by CCM to disallow some cooperatives to carry out direct debit and deductions on civil servants' salaries.
“We have written to the Finance Ministry in March this year, asking for a limit on the number of salary deductions carried out by Angkasa to ensure civil servants have sufficient take-home pay to live on.
“The problem is that civil servants have too many debts as Angkasa makes salary deductions so easy. Salary deductions are only needed for the purchases of houses and cars and these are already carried out by the Public Services Department. In fact, we have asked that Angkasa be shut down as it is nothing more than a debt collector,'' Mohamed Idris added.
Federation of Malaysian Consumer Associations secretary-general Muhammad Sha'ani Abdullah said Angkasa had no right to claim monopoly over the financial standing of Government servants or cooperative members to reap profit.
“Even airlines and Bursa Malaysia have eliminated commission payment to travel agents as well as remisiers. In such a situation, any intermediary body must stop claiming to easy ride for their financial gains.
“Angkasa, as an umbrella body, should provide value-added and other services innovatively that can benefit its member cooperatives,” he noted.
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