INTERACTIVE: Prudent M’sians drive jump in bank deposits amid Covid-19 uncertainties

PETALING JAYA: Many Malaysians who have cash to spare appear to be more prudent during the movement control order (MCO) period, which saw an increase in money deposited in the banks.

Statistics released by Bank Negara showed that deposits in the banking sector saw a rise ever since the MCO started in March.

According to the central bank’s monthly data, savings by individuals in ordinary savings accounts rose by RM6.37bil in March to RM170.03bil compared with February. The amount saved jumped further in April by RM9.57bil to RM179.6bil.

Savings in such accounts by Malaysian have not seen such large increases but large jumps do happen from December to January in previous years.

The amount saved in April 2020 was 17% higher compared with the same month last year.

It was the highest monthly year-on-year jump based on the central bank’s data stretching back to January 2007.

According to the figures, the amount of savings deposits in commercial and Islamic banks by customers under the category “individuals” stood at RM179.6bil in April, compared with RM153.3bil in April last year.

The amount in fixed deposit by individuals, however, appear to have remained constant with the amount seeing fluctuations from February to April.

Individuals withdrew their money from fixed deposit accounts in March by RM1.13bil but increased their savings in such accounts by RM1.6bil in April to reach RM497.6bil.

The MCO started on March 18, and while the Bank Negara data do not explain the reason for the sharp increase in savings deposits which began in February this year (see graphic), there have been reports that shop closures during the earlier part of the MCO led to a drop in consumer spending.

Worries over the economic impact of the MCO may also have led some Malaysians with cash to spare to save more.

The figures do not show whether the jump in bank savings deposits is being driven just by the wealthy or by Malaysians across the board, many of whom are affected by the economic fallout of the pandemic.

An online survey by the Department of Statistics Malaysia (DOSM) conducted from March 23 to 31 revealed that 82.7% of private sector employees only have up to two months of savings while 71.4% of self-employed Malaysians were the most affected, with savings of less than a month.

Overall, only 6.2% of respondents said they were not financially impacted by the MCO while 52.6% said they were “very affected” by it.

The survey found that workers at government-linked companies and multinational companies were the least affected overall by the MCO, with 78.9% and 75.2% of them respectively having savings that could last up to four months.

Several financial experts and economists advised the public to remain prudent in their spending and aim towards building cash reserves of between six months and one year of their usual monthly consumption, if possible.

Sunway University economics professor Dr Yeah Kim Leng said with lower spending throughout the MCO, individuals who can do so appear to be depositing their excess cash in banks.

“This is a positive sign that affirms households’ tendency to save when faced with uncertainty.

“Falling household income as some employers reduce salaries is somewhat offset by income transfers under the stimulus packages.

“Due to the lingering threat of coronavirus infection and the SOP in place, it will be a while before we see a return to normalcy in consumer spending that underpins private consumption trend growth of 6%-7% per year, ” he said.

In a survey in April, the DOSM found that cutbacks in spending were more severe among households in the higher income segments.

The top 20% households (T20) category recorded a 59% reduction in spending, followed by the middle 40% (M40) and bottom 40% (B40) categories at 48% and 41% respectively.

The government has announced various measures to help the people and businesses hit by the impact of Covid-19.

They include the offer of a six-month moratorium (deferment) for all individuals and small and medium enterprise (SME) with outstanding bank loans beginning from April.

Assuming that all households opt for the six-month moratorium, the decline in household spending would be 63% for the T20 group, and 54% and 49% for the M40 and B40 households respectively.

Amid the economic downturn here and abroad, Yeah foresees that consumer spending will remain cautious over the next few quarters.

Yeah said that since the interest rate for savings deposits was low, people can explore higher yielding investment instruments such as fixed income funds and unit trusts in line with their risk appetites and profiles.

On May 5, Bank Negara slashed interest rates by 50 basis points to 2% which led to lower interest rates for savings accounts, fixed deposits and loans.

“More cautious spending and higher precautionary savings will likely continue until the Covid-19 fears recede and positive economic outlook prevails,” he added.

Universiti Malaya economics professor Prof Datuk Rajah Rasiah said Malaysia was currently facing a possible contraction in GDP – over the second quarter – and if this continues over the next quarter, the country may be facing a recession.

“Unlike normal recessions, we are facing a very different crisis – one in which any attempt to kickstart the economy could result in a resumption of Covid-19 infections.”

In contrast to what most economists are predicting, which is a “V” recovery, Rajah believes that it is possible the country could face another wave of infections as predicted by some scientists.

“Hence, it is important that our efforts to open up the economy are undertaken carefully, ” he added.

A “V” recovery is a type of economic recession and recovery that resembles a “V” shape on the charts.

Rajah believes investing in the stock market is not an option for the B40 group due to the high financial risk involved.

“Investment opportunities due to the additional savings throughout the MCO period should not involve the B40 group unless they are engaged in micro-finance ventures.

“As an economist, it is unlikely that I will purchase stocks during this time due to the likelihood of a more severe second attack,” he added.

Financial adviser Gunaseelan Kannan said the public should continue to save up, even after the six-month moratorium period is over and the movement control order (MCO) is fully lifted.

He said the situation could remain uncertain as new Covid-19 infections have been reported in China.

“Until a vaccine for the virus is available, people should continue to save money and have at least a year’s worth of their monthly consumption.”

Gunaseelan said workers in the gig economy and freelancers should have to save more as they are exposed to uncertainties that arise from their state of health and working environment.

He reaffirms that those involved in the gig economy should save up to 50% of their income or as much as they can, especially if they are still single and have less financial commitments.

“Those who are employed should also save at least 20% of their salary even though they have Employees Provident Fund savings, which should be reserved for retirement, ” he said.

The Asia Pacific University of Technology and Innovation (APU) lecturer also advised those with limited savings to keep their savings as liquid assets.

Gunaseelan said liquid assets such as money on hand or other assets that can be readily converted to cash may not give relatively high returns.

“However, they are the best assets to have when a crisis strikes.”

“If you have limited liquid assets, it’s time to increase them immediately, ” he added.