Wednesday, January 28, 2009

Detoxing the Economic Crisis1: THE BANKS - PRODUCTIVE LOANS

A major player in our economic system are the banks. Obviously because they ensure liquidity (meaning money)in the economy - both on the productive side (meaning businesses) and the consumptive side (meaning consumers).

Let us look at the productive side and see how the Banks can play a role in detoxing the slowdown or worsening it. Very often we hear of Government leaders making announcements of funds that have been allocated to banks to ease the economic slowdown and to spur the economy. The reality on the ground is: no money is moving out of the Banks.

I have clients who have major difficulty in obtaining loans nowadays. The answer they receive is that: "The business is viable but let us wait and see after March". This wait-and-see attitude of banks when faced with funding businesses or projects that are viable is hurting not only the business but the economy in general. The longer the waiting period to get the loan approved, the longer the delay of any recovery of the economy. This means resources (meaning generating income) cannot be employed quickly.

The longer the waiting period for the loan, the entire project or the business itself may be called off due to various factors. The cost of waiting can be extremely high and the loan applicant may run of financial stamina.

So, it is about time Banks learn to be nationalistic in their quest to earn the interest and to safeguard their profits. They should not kill off the economy because of their alternative "safer" mode of earning interest from the use of short=term funds.

Small and medium industries, which are so essential for the generation of incomes and creation of employment during crisis periods, should be supported by Banks. Again, I notice from the complaints I have received that such support is not coming or extremely slow. I know banks have "checklist" being used by the banking technocrats.....but it will be useful also if you get the views of someone knowledgeable about the business that is applying for the loans. It is extremely dangerous when all that the bank relies on is the armchair evaluation of a Harvard graduate who doesn't have the slightest inkling about the business that he is supposed to evaluate! Of course it is worse when the evaluator is some young officer fromm some local study place who does not know where he himself is coming or going in the bank. No offence but this is the impression I get and it worries me. During the "good times", every one seemed lax, no everyone seems lost and scared.

I will go so far to say that banks that do not approve loans to viable businesses due to dubious reasons or do not assist in overcoming the "lack of qualifications" that the applicant may have are actually working against national interests.

The Government, the businesses and the Banks have to work together to detox the economy. We have to ensure that there is liquidity in the productive sectors so that this will translate into demand for resources and hence income and employment generation.

On the consumption side, the local Banks must try something that they have never tried before - do not push those who are genuinely out of jobs into bankruptcy. Approach loan and credit cards defaulting with sober approaches that will not worsen the economy and cause further socio-politico-economic problems. Barclays card is a good teacher that knows how to handle defaulting credit card holders in a way that does not destroy the credit card user. Likewise, I understand, Citibank is good at handling those who may have difficulty in settling their credit card repayments.

Moments of crisis requires one to approach matters creatively and not just sticking to set procedures and textbook solutions.



Anonymous said...

Mr Jahamy,

U know what sometimes I thought that banks will be our best friends during our good time and they will turn to be our enemy upon our hard time.

At the end of the day, the interest itself is our enemy!!!

Mac said...

Unc J,
Very interesting...but i guess people can be very selfish...they all think about saving themselves without taking a step back to look at the bigger picture and the greater good.

One thought though (from someone with no backgrounds in economy), would it be wise to remove the middleman (a.k.a the banks) and channel funds from the government directly to loan applicants (businesses), rather than going through the banks who would be very conservative in approving loans ? Any views?

Jahamy said...


Interesting thought. Why not channel the loans directly to the sectors that require it by setting up a special national economic action committee or something to that effect. The mechanism could be though out but the aim to speed up injection of much needed capital into the economy to boost up employemnt.

Dimana ada kemahuan, di situ ada pelbagai cara.

Extraordinary circumstances require extraordinary people with extraordinary solutions.