Bank Negara Explains Why Banks Cannot Forgo Loan Interest Despite Moratorium, Says It Will Hinder Malaysia’s Long-Term Economic Recovery | Malaysia

BNM Governor Datuk Nor Shamsiah Mohd Yunus explained that profits from interest accrued during the loan moratorium are intended to cover the costs of financing banks. Photo by Bernama

KUALA LUMPUR, August 13 – Financial institutions cannot waive interest payments on loans that will accumulate during the ongoing six-month moratorium as there will be serious consequences for the country’s economic recovery after the pandemic of Long-term Covid-19, Bank Negara Malaysia (BNM) said today.

BNM Governor Datuk Nor Shamsiah Mohd Yunus explained that profits from accrued interest during the loan moratorium are intended to cover the costs of financing banks.

This includes the payment of interest on deposits and other borrowing of funds by banks to finance the loans they make.

“So waiving the payment of accrued interest on all personal and business loans under the moratorium will have significant long-term consequences.

“Let me put it in perspective, interest income accounts for 80% of banking income and total loans to individuals and SMEs eligible for the auto moratorium are close to RM1.4 trillion.

“So there would be serious ramifications if banks waived accrued interest given their vital role in the economy,” she said at an online press conference after the release of the performance report. Malaysia’s economy in the second quarter of 2021.

Many Malaysian businesses have been hit hard by repeated lockdowns believed to slow the spread of the disease and are struggling to repay their loans.

The moratorium on opt-in loans announced by the finance ministry in July has been criticized for not waiving accrued interest during the moratorium. Critics have claimed that the additional interest will put more financial pressure on borrowers than they could hardly afford in the future.

Shamsiah was also not asked if banks could consider waiving interest payments on loans.

Explaining further, she said it was very important for banks to stay strong and painted possible scenarios for the country’s economy if financial institutions were hit.

She pointed out that banks had already agreed to waive late fees and compound interest on candidate loans during the moratorium to help borrowers.

“First, banks will pull back on loans to keep their cushions, especially with higher credit losses that are still expected to emerge.

“Their own credit rating may be downgraded to reflect weaker future earning capacities and make it more expensive for banks to raise capital, and this higher cost will be passed on to borrowers.

“Confidence in banks will be affected and this could trigger liquidity stress and depositors may have concerns about the safety of their deposits and this action will also jeopardize the interests of depositors when bank income is affected.

“Banks will also not be able to pay dividends to their retail investors and institutional funds that hold public savings such as EPF, KWAP, PNB, LTAT and Tabung Haji and this will lead to lower yields on depositors and retirement savings, ”she said. noted.

According to Nor Shamsiah, the repayment assistance offered by Malaysian banks is the most extensive of any country, in terms of scale and scope.

As to whether the BNM would consider extending the current moratorium beyond the stipulated period given the weak recovery and the possibility of resurgences of Covid-19 cases, it advised borrowers to seek their respective banks for discuss possible continuation of repayment assistance in the future.

“Well, as the economy reopens, we expect repayment assistance to be more targeted, as each borrower’s financial needs and circumstances will differ.

“We recognize that borrowers may continue to face loan service issues when the current moratorium expires, even as the economy reopens.

“For these borrowers, there are such avenues to help them manage their debts,” she said, adding that banks, especially BNM’s credit counseling and debt management agency, were ready to discuss alternative financial plans for borrowers.

She also stressed that it was crucial for borrowers to take early action by availing these avenues if they anticipated that they would continue to face financial hardship after their current repayment assistance ended.

the six-month loan moratorium The period introduced as part of the Pemulih economic package offered eligible borrowers to defer their loan payments, allowing them to resume making full payments only in 2022.

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