Why are banks in Malaysia seems to be very efficient on proceeding legal suit against default borrowers?
Don't the bank should avoid the account from turning to Non Performing Loan (NPL) by restructuring and giving room to the borrowers for breathing instead of just transferring the account to NPL and hand it over to the recovery department. Don't bank learned during the 1997 crisis when banks are in financial difficulties due to the Asian Currency Financial turmoil, loans can be restructured despite of the increasing interest rates. Those actions were done with the instructions from the Government lead by the former Prime Minister, Tun Dr Mahathir Mohamad. Legal suit was the last resort for borrowers who are unwilling to pay instead of proceeding immediately to those unable to pay.
Banks should professionally clearly define between those UNWILLING and those UNABLE to pay. However, what happen today is that those bankers are happy to have accounts falling into NPL for few various reasons such as :
1. To proceed legal suit where corruption will take place that will benefit bank personnel in two ways i.e that legal firm will give a cut on all legal fess charged while proceeding the legal suit. Another reason is to help client get discount later to pay to the bank with some special cut for the recovery officer or manager.
2. To get high NPL figures for the bank and later when recovery is made, proudly showed to the Board of Directors of the bank that recoveries being made, mitigating that effort were made to recover. Actual fact the borrowers were just in temporary financial difficulties and borrowers themselves made effort to pay to clear their names from the bad CCRIS system available today.
3. Comes year-end, the NPL department will try to make high provision of the NPL account and some were purposely wirtten-off, eventhough recovery chances are very high. This again is for two personal reasons, one is to show high recovery to BOD when client made payment and second reason to get discount of certain percentage of the outstanding amount for the borrower to pay and with certain cut to them personally.
It is seems ridiculous that banks very much prefer to sought to legal suit against default borrowers and incurring penalty interest, further charges and cost to the defaulters account claiming for full outstanding while even the normal monthly instalment were not being able to service, how could the full outstanding be paid. Banks should sought to negotiations with defaulters to restructure by reducing instalments which they will continue paying at a lower amount instead of not paying at all.
Banks should realise that not everyday is sunshine. During bad times, bankers still get their salary, while outside in the market there are people who loose their jobs, paycut and some businessman running loosing business just to keep floating.
Banks should do away with the penalty charges to defaulters, as that will actually inject poison to a sick man.
Banks should not be worst than standing armies killing the public.
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