Banks urged to extend loan repayment period

Banks urged to extend loan repayment period

State employees who borrowed money from banks to buy vehicles are asking for an extension of the loan repayment period after the government suspended their living allowance this fiscal year.

Government officials, who asked not to be named, told Vientiane Times recently they will struggle to keep up with loan repayments after October 1 now that the government has cancelled their monthly living allowance of 760,000 kip (US$95.8).

“It would be helpful if banks can extend the deadline by which we are supposed to repay our loans, for example from the original five years to six years. We just don't have enough money to pay our debts,” one official said.

He said his family had borrowed money from a bank to buy a sedan and had never expected the government to cut the living allowance. Had he known this would be the case, he would never have bought the car.

The government introduced the living allowance last fiscal year, along with a salary increase, saying there would be further salary increases for state employees until 2015.

“My income rose from 800,000 kip to 2,000,000 kip last fiscal year. It never occurred to me it would fall as it's well known that government jobs are the most secure,” the man said.

Their new-found wealth meant government officials were confident they could take out a loan and repay the bank within a five year period. But many were deeply disappointed to learn the living allowance was to be suspended, especially those who were forced to rely solely on their salary.

Economist Dr Mana Southichak said the officials' request was reasonable and he hoped banks would take their changed circumstances into consideration.

He said it would be a win-win situation if banks and borrowers could negotiate an extended loan payment period, as government officials would not otherwise be able to repay their loans as agreed. Dr Mana, who runs a business consultancy, said it would be a good move for banks to defer the repayment deadline as they would be able to attract more customers. If they forced people to pay off their loans as previously agreed, they would certainly lose customers.

But banks would find it difficult to extend the loan repayment period because they used money from depositors to fund the loans they issued, and were obliged to pay this money back to depositors on request.

Other economists say the government and the sectors concerned should actively encourage banks to extend the time for repayment of loans to minimise the impact of the living allowance suspension.

vientiane times