When a person repays a bank loan using actual cash the bank extinguishes the loan (reduces asset) but there is no liability adjustment because the payment did not come from the person running down a deposit account (a liability to the bank). So given the cash doesn't get destroyed by the bank this transaction creates a change in the net financial asset position within the non-government sector.
Answer: False
You might like to review In the spirit of debate my reply Part 2 for further information or post a comment.