quoting Finance Minister Lim Guan Eng as directing commercial banks to grant greater loan access to first-time house buyers and SMEs recently.
As a free market economy, banks are profit-driven. When there’s money to be made, banks will jump at the opportunity. Likewise, when a business proposition has potential risks such as the possibility of default, banks will exercise extra prudence. Lim’s directive to banks is therefore an attempt to tamper with the self-correcting mechanism, or the so-called “Adam Smith’s Invisible Hand” that underpins free market economies. Going down this road comes with inherent medium- to long-term risks.
The last thing banks want is for a borrower to default on payments. Providing financing to borrowers who cannot repay the instalments reeks of financial recklessness, or worse, criminal negligence. This undermines financial stability and could bring about downgrading by rating agencies as well as erosion of investors’ confidence in the long run.