Friday, February 03, 2012

Bad Loan Idea by the EPF

As a statutory body formed to manage the savings of millions of Malaysians for their post retirement use as well as for funding their first house purchase, supporting education of their children or pay for critical illness bills, the EPF is accountable to its members to invest their savings carefully, cautiously and in their long term interest since their investments are locked away for 30 years or more for young salary earners. It is a well known knowledge that the biggest borrower of EPF funds is the Malaysian government because it is cheap. The EPF does not declare good dividends simply because it is not getting good borrowing interests from the government which always look upon this as a convenient backup cheap domestic financier of its projects. It somehow controls the EPF board on how their funds are to be invested, in the local stock exchange, to the government or in foreign equities. Both the EPF and Petronas are the largest source of funds that the government can tap into for its mega projects which are often trumpeted as for the well being of the people.

THIS latest fiasco is again going to blow up against the government, this time touching the raw nerves of savers in the EPF which they are required to do so by law. Currently some 25% of a contributor's salary inclusive of his employer's portion must be remitted into his EPF account which he can only withdraw partially upon reaching his 50th birthday and the rest upon his retirement. That money is like a pot of gold a contributor anxiously await to seize control. The government has 'forced' the EPF to set aside RM1.5 billion to lend to borrowers that commercial banks have rejected for various reasons, chiefly either absence of collateral or guarantor or the property is not in their list of approved projects.

Reading the response from the prime minister to allay public concerns I feel his reply is over-simplistic and lacks understanding of the worries these contributors face. In the first place it is no business of EPF to be a financier. Its main role is to be an investor so the RM1.5 billion housing loan project is wrong. I don't know if the EPF made the independent decision or was forced into it. It appear to be the latter and that the EPF is beholden more to the government than protect the interest of the contributors. As members they have statutory rights to know and approve how their savings are being invested. This is currently not happening as there is no empowerment given to them via a group. The EPF cannot be a social organization which it is not. It was not established to be one. It is a purpose driven fund manager and its clients are all the Malaysians who by law have to contribute to the EPF fund. The big question is whether the EPF Board have erred in investing RM1.5 billion not to a few major borrowers of credible track records but become a lender to thousands of Malaysians (and possibly some foreigners as well) of dubious credit standing. I am not against helping the poor but it must come from the government, through a social well-being project and using budgets approved by the Parliament and certainly not hijacking private savings in the EPF to which the government must not have any say to dictate the way it is to be invested.

Malaysians who have borrowed from the government have been notorious in NOT paying back the loans, chief among them students who took loans to further their studies, others who took micro credits to start small businesses, fail and disappeared. Their thinking must be the government is loaded so can afford to write off such defaulting loans or the government is lax or worst, the government is racially biased. To the public the defaults cost the government to write off hundreds of millions of ringgit which eventually can be said to belong to the taxpayers since the government owns no money except those they receive through taxes and royalties. Federal Territory and Urban Well-Being Minister assured that the government is the guarantor of any defaulting loans so the EPF is protected. But whose money will be used to cover such defaults? You already know I'm sure. Imagine the likely scenario:

'A' borrows RM50,000 to buy a house using the EPF loan. He pays RM5,000 and defaulted the rest. The government guarantees EPF the RM45,000 owed by 'A'. What does this suggest to 'A'? Default lah! The government has guaranteed to repay his outstanding loan. So far no one has gone to jail for not settling a government loan.

Next the PM was quoted as saying, 'If a buyer is unable to or does not repay the loan, the unit can be sold for a higher price. We always safeguard the interests of the EPF'.

If this is indeed true then I suggest the PM talk to his banker brother Dato Seri Nazir Razak. Any one who knows how a bank works know that when a housing loan is defaulted the bank puts up the property for auction. The interest is to recover the bank's outstanding loan from the borrower, NOT to auction at the highest or market price of the property. Furthermore bidders always look for a bargain so how to get the highest or real market price? The PM must be dreaming or pulling a fast one. Even if the property market is inflationary it will be mostly to those in the high end sector like the commercial buildings and condominiums, not those medium to low cost houses which is the contentious issue now which can blow over into an unfavorable reaction at the upcoming election. In Malaysia, people are very money sensitive, especially THEIR money.

Below are samples of what I picked up from some commentors to the above issue, and they are obviously very, very unhappy and infuriated:

DON'T TOUCH MY (EPF) MONEY...if you do...I will show you how I vote in the coming GE. Layoff man...or you gonna get it.

If they can't afford to buy a house, they should just continue renting! No shame in that. This scheme is a disaster waiting to happen -- putting a financial burden on those who simply cannot afford! DBKL can't event collect rent -- let alone collect a loan!

EPF money does not belong to the government but to the rakyat. Ministers and their croonies may not required the EPF money as they are "rich" but the poor rakyat depend on their EPF after they retire, therefore, please leave the EPF money alone! I thought by listing Felda, its going to generate millions if not billion, then why not use this money??? What happen to the increase tax collected over the years??? LEAVE MY EPF MONEY ALONE!!!!!!

Leave EPF money alone. If this loan is so secured, get a financial institution to fund it then.

This is outrageous. How can this be allowed? EPF funds don't belong to the government but to contributors.

If you really want to help people then why not use government's own money? Why ask EPF to fund it?

Update February 4: THIS report from the Opposition's reaction is very well echoed. I admire the depth and honesty of the arguments presented in comparison to the lame excuses given by our top executive.


Albert Wong said...

Hi Peter, would you thinks the 1st housing loan idea is mirror from Sub- prime in USA.

When One is not qualify to get loan on conversational banking system, this mean him/her are in NPL/higher default mode. The same group could be contribute less to EPF then average Malaysian. Why that those who working hard to contribute more need to subsidy this group?

Further more, although PM can said property price is higher then outstanding loan amount, what happen to subprime, supply more then demand, although houses price maintaining high, but no buyer, no transaction.

This is public money, they should't use it as politic capital to solicit votes........

Peter Yew said...

Albert, not so much of a sub-prime issue but of abusing the trust employees gave to the EPF in lending out their hard earned contributions to borrowers of high risk. The government should IMMEDIATELY retract the scheme or risk being sued. Peter.


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