Another loan moratorium not a good idea Banks are feeling the pressure following calls by certain groups of seemingly influential politicians who are focusing on populist moves to gain the favor of the masses. This is according to several senior bankers who are also the main decision-makers at their respective banks. The subject at the center of the controversy is the moratorium period where bank borrowers do not have to make payments on their loans - and these political parties are calling for another blanket moratorium to be introduced, less than three months after the first one officially ended. a A blanket moratorium by the government was introduced back in April until the end of September as a result of the Covid-19 pandemic, which caused many to lose their sources of income, and therefore, be unable to make good on their loan payments. At the same time, because the moratorium was a blanket one, some whose incomes were unaffected also took up the moratorium, and there were even those who channeled the "extra" funds that they had by not making payments on their loans into the stock market, which was purring along nicely over the same period. To be exact, the blanket moratorium had benefited more than 90% of total borrowers in the country, with some 7.7 million individuals and over 200,000 SMEs taking it up. It ended at the end of September but since then, banks have come out to say they are open to discussing with those who really need extended periods of aid, particularly those from the low-income groups, as well as those from heavily affected industries such as hotels, tourism and aviation. Amid the brouhaha, one thing is quite clear, at least from the viewpoint of lenders. "For the banks, another blanket moratorium will certainly not be good," says a banker. He says most of their recent earnings have been much lower than in the past, as provisions for doubtful debts have increased drastically. "Allowing for another blanket moratorium will extend the pain for lenders. Banks will eventually need to put aside more provisions for these bad debts, and overall, this will disrupt the banking and possibly, the entire financial system,' he says. Proponents of a blanket moratorium argue that although banks' net profits have been declining, they are still profitable and can afford to impose another blanket moratorium. Not so, bankers say as the implications can be far and wide. "Banks need to continue to make profits in order to maintain sufficient capital levels to, in turn, maintain a certain level of strength, more so in these pandemic times, where more allocation for capital is needed due to uncertainties." According to this banker, there is also the perception that banks keep the profits that they make to themselves. "This is untrue as most of the profits are divvied out to the shareholders," he adds. In the most recently-concluded quarter, the two largest banks in the country, reported a decline in their net profits on a year-on-year basis. Article: The STAR, Dec 2020 From the above article: a. Define the word moratorium and blanket moratorium. (5 marks) b. Analyze the effects to the economy from the perspective of financial institution if another loan moratorium is being offered. (20 marks)